UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20212022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-50231
Federal National Mortgage Association
(Exact name of registrant as specified in its charter)
Fannie Mae
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| Federally chartered corporation | 52-0883107 | 1100 15th Street, NW
| | 800 | | 232-6643 |
| | | Washington, | DC | 20005 | | | | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | | (Address of principal executive offices, including zip code) | | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☑ | | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐ No ☑
As of April 15, 2021,2022, there were 1,158,087,567 shares of common stock of the registrant outstanding.
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| TABLE OF CONTENTS |
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| PART I—Financial Information | |
| Item 1. | | |
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| Item 2. | | |
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| Summary of Our Financial Performance | |
| Liquidity Provided in the First Quarter of 20212022 | |
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| Single-Family Mortgage Market | |
| Single-Family Market Activity | |
| Single-Family Business Metrics | |
| Single-Family Business Financial Results | |
| Single-Family Mortgage Credit Risk Management | |
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| Multifamily Mortgage Market | |
| Multifamily Business Metrics | |
| Multifamily Business Financial Results | |
| Multifamily Mortgage Credit Risk Management | |
| Consolidated Credit Ratios and Select Credit Information | |
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| Institutional Counterparty Credit Risk Management | |
| Market Risk Management, including Interest-Rate Risk Management | |
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Fannie Mae First Quarter 20212022 Form 10-Q | i |
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| Item 3. | | |
| Item 4. | | |
| PART II—Other Information | |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| Item 5. | | |
| Item 6. | | |
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Fannie Mae First Quarter 20212022 Form 10-Q | ii |
PART I—FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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| 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 provided for the exercise of certain functions and authorities by our Board of Directors. Our directors do not have anyowe their fiduciary duties of care and loyalty solely to the conservator. Thus, while we are in conservatorship, the Board has no 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.its stockholders. | |
| We do not know when or how the conservatorship will terminate, what further changes to our business will be made during or following conservatorship, what form we will have and what ownership interest, if any, our current common and preferred stockholders will hold in us after the conservatorship is terminated or whether we will continue to exist following conservatorship. FHFA established 2021 performance objectives for us that included preparing for our eventual exit from conservatorship.Members of Congress and the Administration continue to consider options for reformexpress the importance of the housing finance system including Fannie Mae.reform. | |
| We are not currently permitted to pay dividends or other distributions to stockholders. Our agreements with the U.S. Department of the Treasury (“Treasury”) include a commitment from Treasury to provide us with funds to maintain a positive net worth under specified conditions; however, the U.S. government does not guarantee our securities or other obligations. Our agreements with Treasury also include covenants that significantly restrict our business activities. For additional information on the conservatorship, the uncertainty of our future, and our agreements with Treasury, and recent developments relating to housing finance reform, see “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” and “Risk Factors”Factors—GSE and Conservatorship Risk” in our Form 10-K for the year ended December 31, 20202021 (“20202021 Form 10-K”). | |
You should read this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A&A”) in conjunction with our unaudited condensed consolidated financial statements and related notes in this report and the more detailed information in our 2020 2021 Form 10-K. You can find a “Glossary of Terms Used in This Report” in our 20202021 Form 10-K.
Forward-looking statements in this report are based on management’s current expectations and are subject to significant uncertainties and changes in circumstances, as we describe in “Forward-Looking Statements.” Future events and our future results may differ materially from those reflected in our forward-looking statements due to a variety of factors, including those discussed in “Risk Factors” and elsewhere in this report and in our 20202021 Form 10-K.
Introduction
Fannie Mae is a leading source of financing for mortgages in the United States, with $4.1$4.3 trillion in assets as of March 31, 2021.2022. Organized as a government-sponsored entity, Fannie Mae is a shareholder-owned corporation. Our charter is an act of Congress, and we have a mission underwhich establishes that charterour purposes are to provide liquidity and stability to the residential mortgage market and to promote access to mortgage credit. We were initially established in 1938.
Our revenues are primarily driven by guaranty fees we receive for assuming the credit risk on loans underlying the mortgage-backed securities we issue. We do not originate loans or lend money directly to borrowers. Rather, we work primarily work with lenders who originate loans to borrowers. We securitize those loans into Fannie Mae mortgage-backed securities that we guarantee (which we refer to as Fannie Mae MBS or our MBS).
Effectively managing credit risk is key to our business. In exchange for assuming credit risk on the loans we acquire, we receive guaranty fees. These fees take into account the credit risk characteristics of the loans we acquire and consist of two primary components:
•Loan-level pricing adjustments, which are upfront fees received when we acquire single-family loans.
•Base guaranty fees, which we receive monthly over the life of the loan.
acquire. Guaranty fees are set at the time we acquire loans and do not change over the life of the loan. How long a loan remains in our guaranty book is heavily dependent on interest rates. When interest rates decrease, a larger portion of our book of business turns over as more loans refinance. On the other hand, as interest rates increase, fewer loans refinance and our book turns over more slowly. Since guaranty fees are set at the time a loan is originated, the impact of any change in guaranty fees on future revenues is dependentdepends on the raterates at which newly originated loans replace the existing loans in our book of business.business turn over and new loans are added.
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Fannie Mae First Quarter 20212022 Form 10-Q | 1 |
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| MD&A | Executive Summary | Summary of Our Financial Performance |
Executive Summary
Summary of Our Financial Performance
Q1 20212022 vs. Q1 20202021
•Net revenues increased $1.4 billion$653 million in the first quarter of 2022 compared with the first quarter of 2021, primarily due to higher base guaranty fees driven by an increase in the size of our guaranty book of business, partially offset by a decrease in amortization income as a result of lower prepayment volumes in the first quarter of 2022 compared with the first quarter of 2021.
•Net income decreased $585 million in the first quarter of 2022 compared with the first quarter of 2021, driven primarily by a shift from credit-related income in the first quarter of 2021 compared with the first quarter of 2020, primarily due to an increase in net amortization income as a result of continued high prepayment volumes from loan refinancings in the first quarter of 2021 driven by the low interest-rate environment. High prepayments result in accelerated amortization of cost basis adjustments, including risk-based pricing adjustments and other upfront fees we received at the time of loan acquisition. We anticipate net revenues from prepayment activity will begin to slow in the second half of 2021, as we expect mortgage interest rates are likely to rise, resulting in fewer borrowers who can benefit from a refinancing. Lower levels of refinancing will likely slow the accelerated amortization of cost basis adjustments for loans in our book of business as loans remain outstanding for longer, and therefore will likely result in lower amortization income in any one period.
•Net income increased $4.5 billion in the first quarter of 2021 compared with the first quarter of 2020, primarily driven by a shift from credit-related expense in the first quarter of 2020 to credit-related2022, partially offset by an increase in net interest income in the first quarter of 2021. Credit-related expense in the first quarter of 2020 was driven by economic dislocation caused by the COVID-19 pandemic. Credit-related income in the first quarter of 2021 was driven by a benefit for credit losses primarily due to higher actual and forecasted home prices, partially offset by higher actual and projected interest rates. Additional drivers of increased net income include the increase in net revenues from higher net amortization incomebase guaranty fees as discussed above and a shift from fair value losses to gains in the first quarter of 2021 primarily driven by our implementation of hedge accounting in January 2021.above.
•Net worth increased to $30.2$51.8 billion as of March 31, 20212022 from $25.3$47.4 billion as of December 31, 2020.2021. The increase is attributable to $5.0$4.4 billion of comprehensive income for the first quarter of 2021.2022.
Long-term financial performance. Our long-term financial performance will depend on manyFinancial Performance Outlook
We expect lower amortization income in 2022 compared with 2021, driven by reduced refinancing activity. In addition, we expect a shift from significant credit-related income in 2021 to modest credit-related expense in 2022. We expect those factors including:
•the sizeto result in lower net income in 2022 compared with 2021. See “Key Market Economic Indicators” for a discussion of how home prices, interest rates and our share of the U.S. mortgage market, which in turn will depend upon population growth, household formation and housing supply;
•borrower performance, the guaranty fees we charge, and changes inother macroeconomic factors including home prices and interest rates; andcan affect our financial results.
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Fannie Mae First Quarter 20212022 Form 10-Q | 2 |
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| MD&A | Executive Summary | Summary of Our Financial Performance |
•actions by FHFA, the Administration and Congress relating to our business and housing finance reform, including our capital requirements, our ongoing financial obligations to Treasury, restrictions on our activities and our business footprint, our competitive environment, requirements to support borrowers or the mortgage market, and actions we take in light of these conditions.
We discuss recent measures to address the economic impact of COVID-19 in the American Rescue Plan Act of 2021 (the “American Rescue Plan”) that may impact us in “Legislation and Regulation” and recent economic conditions in “Key Market Economic Indicators” in this report.
Liquidity Provided in the First Quarter of 20212022
Through our single-family and multifamily business segments, wewe provided $422$255 billion in liquidity to the mortgage market in the first quarter of 2021, including $211 billion through our whole loan conduit that primarily supports small- to medium-sized lenders,2022, enabling the financing of approximately 1.7 million935,000 home purchases, refinancings orand rental units. For a description of how we determine multifamily new business volume and multifamily new units financed, see “Multifamily Business—Multifamily Business Metrics.”
Fannie Mae Provided $422$255 Billion in Liquidity in the First Quarter of 20212022
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| Unpaid Principal Balance | | Units |
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$99B104B | | 340K312K
Single-Family Home Purchases |
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$301B135B | | 1.1M487K
Single-Family Refinancings |
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$22B16B | | 217K136K
Multifamily Rental Units |
We continued our commitment to green financing in the first quarter of 2021,2022, issuing a total of $6.4$2.8 billion in multifamily green MBS, $37.4$371 million in single-family green MBS, and $715.4$781 million in multifamily green resecuritizations. We also issued $3.1$2.2 billion in multifamily social MBS and $314.8 million in multifamily social resecuritizations in the first quarter of 2021.2022. These green and social bonds represent our first issuance of social bonds and were issued in alignment with our Sustainable Bond Framework, which guides our issuances of sustainable debt bonds and sustainable MBS that support energy and water efficiency and housing affordability and green financing.affordability. For information about the financing we have provided through our green bonds and our Sustainable Bond Framework, see “Directors, Executive Officers and Corporate Governance—Corporate Governance—ESG Matters” in our 20202021 Form 10-K.
Legislation and Regulation
The information in this section updates and supplements information regarding legislative, regulatory, conservatorship and other developments affecting our business set forth in “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” and “Business—Legislation and Regulation” in our 20202021 Form 10-K. Also see “Risk Factors” in our 20202021 Form 10-K and in this report for discussions of risks relating to legislative and regulatory matters.
American Rescue PlanFinal Rule Amending the Enterprise Regulatory Capital Framework
InOn December 17, 2020, FHFA published a final rule to establish the enterprise regulatory capital framework for Fannie Mae and Freddie Mac. On March 2021, Congress enacted16, 2022, FHFA published a final rule amending the enterprise regulatory capital framework to refine both the prescribed leverage buffer amount and the President signedrisk-based capital treatment of credit risk transfer transactions. Specifically, the American Rescue Planfinal rule published in March 2022:
•replaces the fixed leverage buffer equal to address1.5% of our adjusted total assets with a dynamic leverage buffer equal to 50% of our stability capital buffer;
•replaces the economic dislocationprudential risk weight floor of 10% on any retained credit risk transfer exposure with a prudential risk weight floor of 5% on any retained credit risk transfer exposure;
•removes the requirement to apply an overall effectiveness adjustment to our retained credit risk transfer exposures; and
•implements technical corrections to other burdens resulting from the COVID-19 pandemic. The act follows enactmentprovisions of the Coronavirus Aid, Relief,enterprise regulatory capital framework published on December 17, 2020.
These amendments to the enterprise regulatory capital framework increase the capital relief afforded by credit risk transfer transactions and Economic Security Act (the “CARES Act”) in March 2020reduce the amount of capital we will be required to hold relative to the requirements under the original framework; however, the amount of capital we will be required to hold under the amended enterprise regulatory capital framework remains substantially higher than the previously applicable statutory minimum capital requirement.
To be fully capitalized under the enterprise regulatory capital framework, we must meet all applicable leverage capital requirements and risk-based capital requirements, including applicable buffers, under the Consolidated Appropriations Act of 2021 in December 2020. The American Rescue Plan contains many provisions designed to mitigate the negative economic impactstandardized approach of the COVID-19 pandemic, including direct cash paymentsrule. As of March 31, 2022, our risk-based adjusted total capital requirement (including buffers) represented the amount of capital needed to eligible taxpayers below specified income limits, extended unemployment insurance benefits, and additional relief designed to prevent layoffs and business closures at small businesses. It also includes emergency rental assistance, emergency housing vouchers and funds to assist struggling homeowners with mortgage payments, property taxes, property insurance, utilities and other housing-related costs. We expect the funding providedbe fully capitalized under the American Rescue Plan will improvestandardized approach to the ability of some single-familyrule, and multifamily borrowers to make payments on their loans.
Proposed CFPB Rule Regarding Foreclosure
On April 5, 2021, the Consumer Financial Protection Bureau (the “CFPB”) issuedwe had a proposed rule that, if finalized, would generally prohibit servicers from initiating any new foreclosure on a mortgage loan secured by the borrower’s principal residence until after December 31, 2021. The CFPB is considering providing limited exceptions from this prohibition if the servicer has completed its loss mitigation review and determined the borrower is not eligible for any non-foreclosure$272 billion shortfall
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Fannie Mae First Quarter 20212022 Form 10-Q | 3 |
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| MD&A | Legislation and Regulation |
option or if the borrower has been unresponsive to servicer outreach. The proposed effective date of the rule is August 31, 2021 and public comments are due May 10, 2021. Fannie Mae has already suspended foreclosures and certain foreclosure-related activities for single-family properties, other than for vacant or abandoned properties, through at least June 30, 2021. If the period before foreclosures can be initiated is extended, it may impact the timing of when we realize credit losses from foreclosures and foreclosure-related activities. It could also increase our expected credit loss reserves, which could adversely affect our credit-related expenses.
Federal Eviction Moratorium
In March 2021, the Centers for Disease Control and Prevention (the “CDC”) extended through June 30, 2021 its order prohibiting the eviction of any tenant, lessee or resident of a residential property for nonpayment of rent, if such person provides a specified declaration attesting that they meet the requirements to obtain the protection of the order. The requirements to obtain the protection of the order include a specified income cap and an inability to pay full rent. Challenges to the CDC’s eviction moratorium order have been brought in a number of jurisdictions, and the validity of the CDC’s order remains subject to further litigation. While the CDC order does not impose any obligations on Fannie Mae or its servicers to ensure compliance by borrowers, a borrower’s income may be impacted by tenants who do not pay their rent while under the protection of the CDC order. As a result and as described in “Risk Factors” in our 2020 Form 10-K, these eviction moratoriums could adversely affect the ability of some of our borrowersavailable capital (deficit) to make payments on their loans.
New Refinance Option
On April 28, 2021, FHFA announced that it is directing Fannie Mae and Freddie Mac to implement a new refinance option targeting low-income borrowers with single-family mortgages backed by Fannie Mae and Freddie Mac. The initiative is intended to encourage eligible borrowers to take advantage of the current low interest-rate environment to refinance and lower both their interest rates and their monthly mortgage payments.
2020 Housing Goals Performance
We are subject to housing goals, which establish specified requirements for our mortgage acquisitions relating to affordability or location. We believe we met all of our single-family and multifamily housing goals for 2020. Final performance results will be determined and published by FHFA sometime after the release later this year of 2020 data reported by primary mortgage market originators under the Home Mortgage Disclosure Act.requirement. For more information onregarding our housing goals,capital requirements under the amended enterprise regulatory capital framework, see “Liquidity and Capital Management—Capital Management—Capital Requirements” and “Note 14, Regulatory Capital Requirements.” Also see “Business—Legislation and Regulation—GSE Act and Other Legislative andGSE-Focused Matters—Capital—Enterprise Regulatory Matters—Housing Goals”Capital Framework” in our 20202021 Form 10-K.10-K for additional information on the enterprise regulatory capital framework.
The Qualified Mortgage Patch
In December 2020,Although FHFA has amended the CFPB published a final rule that eliminates the qualified mortgage patch and replaces the 43% debt-to-income (“DTI”) ratio limit and certain other requirements for a standard qualified mortgage with a pricing and underwriting framework. The final qualified mortgage rule went into effect in March 2021, with lenders required to comply beginning in July 2021. In April 2021, the CFPB published a final rule extending the mandatory compliance date to October 2022 and thereby also extending the qualified mortgage patch. The CFPB has indicated that it will consider changes to the final rule during the extended implementation timeframe. Although the rule’s implementation is delayed, the terms ofenterprise regulatory capital framework, our senior preferred stock purchase agreement with Treasury requirecurrently includes a covenant that after July 2021 most single-family loans we purchase be qualified mortgages underrequires us to comply with the terms of the final ruleenterprise regulatory capital framework as published by FHFA in December 2020, disregarding any subsequent amendments or modifications. The enterprise regulatory capital framework requires that went into effectwe provide our initial quarterly capital reports to FHFA by May 30, 2022 and that we publicly report our calculations of regulatory capital levels, buffers, adjusted total assets, and total risk-weighted assets under the standardized approach of the framework. FHFA has instructed us to report our capital requirements under the amended enterprise regulatory capital framework, not under the original requirements of the framework published in March 2021. WeDecember 2020. Accordingly, we do not expect to be in compliance with the final qualified mortgage rule,senior preferred stock purchase agreement covenant that requires us to comply with the terms of the enterprise regulatory capital framework as published by FHFA in December 2020.
Federal LIBOR Transition Legislation
On March 15, 2022, President Biden signed into law the “Consolidated Appropriations Act, 2022,” which includes the “Adjustable Interest Rate (LIBOR) Act” (the “LIBOR Act”). The LIBOR Act establishes a clear and uniform process for replacing LIBOR as the benchmark reference interest rate in existing contracts that do not contain a clearly defined or practicable replacement benchmark rate for when LIBOR is discontinued. LIBOR is currently expected to impact our business significantly, but it may increase competition. See “Risk Factors—GSEno longer be published after June 30, 2023. Under the LIBOR Act, references to the most common tenors of LIBOR in these contracts will be replaced as a matter of law, without the need to be amended, to instead reference a benchmark interest rate that will be identified in regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Federal Reserve must issue these regulations by September 11, 2022.
The LIBOR Act provides that the Federal Reserve must identify a replacement benchmark based on the Secured Overnight Financing Rate (“SOFR”) and Conservatorship Risk”will include an appropriate “tenor spread adjustment” to reflect historical spreads between LIBOR and “Risk Factors—LegalSOFR. The LIBOR Act also provides for the Federal Reserve to identify any conforming changes relating to the implementation, administration and Regulatory Risk”calculation of the new SOFR benchmark that will be incorporated in our 2020 Form 10-Kapplicable LIBOR contracts. The LIBOR Act establishes a safe harbor for more informationmarket participants that act in accordance with such legislation, shielding them from litigation for selecting and implementing the Federal Reserve-identified replacement rate and related conforming changes. The LIBOR Act reduces the risks to us associated with the approaching cessation of LIBOR.
Interagency Action Plan to Advance Property Appraisal and Valuation Equity
In March 2022, the Interagency Task Force on risks presented by regulatory changesProperty Appraisal and Valuation Equity (the “PAVE Task Force”) published an Action Plan to Advance Property Appraisal and Valuation Equity (the “PAVE Action Plan”). The PAVE Task Force is composed of thirteen federal agencies and offices, including the U.S. Department of Housing and Urban Development (“HUD”) and FHFA. The PAVE Action Plan outlines the historical role of racism in the financial services industry.valuation of residential property, examines the various forms of bias that can appear in residential property valuation practices, describes affirmative steps that federal agencies will take to advance equity in the residential property valuation process, and outlines further recommendations that government and industry stakeholders can initiate. Some of the proposed actions contained in the PAVE Action Plan, including additional initiatives the PAVE Task Force is considering such as expanded use of alternatives to traditional appraisals, could have a significant impact on our current appraisal and valuation policies and procedures. We expect to work closely with FHFA on future changes to these policies and procedures in support of the PAVE Action Plan and any further recommendations of the PAVE Task Force.
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Fannie Mae First Quarter 20212022 Form 10-Q | 4 |
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| MD&A | Key Market Economic Indicators |
Key Market Economic Indicators
Below we discuss how varying macroeconomic conditions can influence our financial results across different business and economic environments.
The COVID-19 pandemic has had a significant adverse effect on both the U.S. and global economies. Our forecasts and expectations are based on many assumptions, subject to many uncertainties including the impact of the COVID-19 pandemic, and may change, perhaps substantially, from our current forecasts and expectations. For further discussion on housing activity, see “Single-Family Business—Single-Family Mortgage Market” and “Multifamily Business—Multifamily Mortgage Market.”
Selected Benchmark Interest Rates
(1)According to Bloomberg.
(2)Refers to the U.S. weekly average fixed-rate mortgage rate according to Freddie Mac's Primary Mortgage Market Survey®. These rates are reported using the latest available data for a given period.
(2)According to Bloomberg.
(3)Refers to the daily rate per the Federal Reserve Bank of New York.
How interest rates can affect our financial resultsInterest Rates Can Affect Our Financial Results
•Net interest income. In a rising interest-rate environment, our mortgage loans tend to prepay more slowly. We amortize various cost basis adjustments over the life of the mortgage loan, including those relating to loan-level pricingprice adjustments we receive as upfront fees at the time we acquire single-family loans. As a result, any prepayment of a loan results in an accelerated realization of those upfront fees as income. Therefore, as loan prepayments slow, the accelerated realization of amortization income also slows. Conversely, in a declining interest-rate environment, our mortgage loans tend to prepay faster, typically resulting in the opposite trendstrend of higher net amortization income from cost basis adjustments on mortgage loans and related debt.
•Fair value gains (losses). We have exposure to fair value gains and losses resulting from changes in interest rates, primarily through our mortgage commitment derivatives and risk management derivatives, which we mark to market through earnings. Fair value gains and losses on our mortgage commitment derivatives fluctuate depending on how interest rates and prices move between the time thea commitment is opened and settled.when it settles. The net position and composition across the yield curve of our risk management derivatives changes over time. As a result, interest rate changes (increases or decreases) and yield curve changes (parallel, steepening or flattening shifts) will generate varying amounts of fair value gains or losses in a given period.
•Credit-related income (expense). Increases in mortgage interest rates tend to lengthen the expected lives of our loans, which generally increases the expected impairment and provision for credit losses on such loans. Decreases in mortgage interest rates tend to shorten the expected lives of our loans, which reduces the impairment and provision for credit losses on such loans.
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Fannie Mae First Quarter 20212022 Form 10-Q | 5 |
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| MD&A | Key Market Economic Indicators |
•In January 2021, we began applying fair value hedge accounting to reduce the impact of changesCredit-related income (expense). Increases in mortgage interest rates ortend to lengthen the interest-rate effect, onexpected lives of our financial results. For additional information on how hedge accounting supportsloans. Generally, the expected impairment and provision for credit losses associated with impaired loans increases as the expected lives of our interest-rate risk management strategymortgage loans increase and our fair value hedge accounting policy, see “Consolidated Resultsdecreases as the expected loan lives shorten.
•Interest rates have increased significantly since December 31, 2021. The average 30-year fixed-rate mortgage rate reached 5.10% as of Operations—Hedge Accounting Impact,” “Risk Management—Market Risk Management, including Interest-Rate Risk Management—Earnings Exposure to Interest-Rate Risk” and “Note 1, Summary of Significant Accounting Policies.”April 28, 2022.
Single-Family Quarterly Home Price Growth Rate(1)
(1)Calculated internally using property data on loans purchased by Fannie Mae, Freddie Mac and other third-party home sales data. Fannie Mae’s home price index is a weighted repeat transactionsrepeat-transactions index, measuring average price changes in repeat sales on the same properties. Fannie Mae’s home price index excludes prices on properties sold in foreclosure. Fannie Mae’s home price estimates are based on preliminary data and are subject to change as additional data becomes available.
How Home prices and how they can affect our financial resultsPrices Can Affect Our Financial Results
•Actual and forecasted home prices impact our provision or benefit for credit losses.losses as well as the growth and size of our guaranty book of business.
•Changes in home prices affect the amount of equity that borrowers have in their homes. Borrowers with less equity typically have higher delinquency and default rates.
•As home prices increase, the severity of losses we incur on defaulted loans that we hold or guarantee decreases because the amount we can recover from the properties securing the loans increases. Declines in home prices increase the losses we incur on defaulted loans.
•Home prices also impact the growth and size of our guaranty book of business. As home prices rise, the principal balance of loans associated with purchase-moneypurchase money mortgages may increase, which affectscausing growth in the size of our guaranty book. Additionally, rising home prices can increase the amount of equity borrowers have in their home, which may lead to an increase in origination volumes for cash-out refinance loans with higher principal balances than the existing loan. Replacing existing loans with newly acquired cash-out refinances can affect the growth and size of our guaranty book.
•Home price growth in the first quarterof 20212022 was unseasonably strong, driven by continued low interest rates and low levels of housing supply relative to the level of demand. We believe some of the demand in the first quarter was driven by home buyers accelerating home purchases in anticipation of further increases in mortgage interest rates.
•We currentlyWhile we expect home price growth on a national basis to remain strong in 20212022, we do not expect the pace of 8.8%, which is a significant increase compared with our prior forecast but lower than the exceptionally strongrapid home price growth that we have experienced over the last year to continue. We expect home price growth to moderate from an annual growth rate of 10.6%19.1% in 2020. However, a higher-than-expected supply2021 to 10.8% in 2022, with most of homes available for sale or weaker-than-expected demand could lead tothis growth occurring in the first half of the year. We expect slower home price growth in home prices.the second half of 2022 and in 2023, driven by interest-rate increases, inflation and reduced affordability, especially for low- and moderate-income borrowers. We also expect significant regional variation inthat some regions of the timing and rate ofcountry may experience home price growth.
•declines in 2023.Our forecasts and expectations are subject to many uncertainties and may change, perhaps substantially, from our current forecasts and expectations, including any continued impact from the COVID-19 pandemic. For example, home price growth could slow if GDP growth is weaker than we currently expect, if unemployment, particularly among existing homeowners and potential new home buyers, is higher than we expect, or if the housing market is more sensitive to economic and labor-market weaknesses than we expect. For further discussion on housing activity, see “Single-Family Business—Single-Family Mortgage Market” and “Multifamily Business—Multifamily Mortgage Market.”
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Fannie Mae First Quarter 20212022 Form 10-Q | 6 |
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| MD&A | Key Market Economic Indicators |
New Housing Starts(1)
(1)According to U.S. Census Bureau and subject to revision. New housing starts for the first quarter of 2021 are based on Fannie Mae’s forecast.
How housing activity can affect our financial resultsHousing Activity Can Affect Our Financial Results
•Two key aspects of economic activity that can impact supply and demand for housing and thus mortgage lending are the rates of household formation and housing construction.
•Household formation is a key driver of demand for both single-family and multifamily housing. Ahousing as a newly formed household will either rent or purchase a home. Thus, changes in the pace of household formation can affect prices and credit performance as well as the degree of loss on defaulted loans.
•Growth of household formation stimulates homebuilding. Homebuilding has typically been a cyclical leader, weakening prior to a slowdown in U.S. economic activity and accelerating prior to a recovery, which contributes to the growth of GDP and employment. However, the housing sector’s performance may vary from its historical precedent due to the many uncertainties surrounding future economic or housing policy as well as the continued impact of the COVID-19 pandemiclabor and material shortages on the economy and the housing market.
•With regard to housing construction, a decline in housing starts results in fewer new homes being available for purchase and potentially a lower volume of mortgage originations. Construction activity can also affect credit losses through its impact on home prices. If the growth of demand exceeds the growth of supply, prices will appreciate and impact the risk profile of newly originated home purchase mortgages, depending on where in the housing cycle the market is. A reduced pace of construction is often associated with a broader economic slowdown and may signal expected increases in delinquency and losses on defaulted loans.
•Home sales fell in the first quarter of 2021, declining from the high pace seen at the end of 2020. We expect a continued lack of inventory for both new and existing homes available for saleand worsening affordability will likely continue to constrain home sales into the second quarter.
•Strong pricing, given both the current strength in demand and low supplyquarter of existing and new homes available for sale, should support construction and we2022. We expect single-family housing starts to be similar in 2022 as in 2021, as the pace of new construction continues to exceed 2020 levelsbe affected by 23.8%. We alsosupply chain disruptions and labor shortages. Given the constraints on home sales and new construction, we expect housing activity to remain strong throughout 2021.
•Construction demanddecline in the multifamily sector strengthened at the beginning of 2021, with multifamily starts posting a solid increase in the first quarter. We expect a modest pullback in the second quarter before multifamily starts remain mostly flat for the second half of 2021; we project multifamily starts2022 compared to edge up about 1.0% on an annual basis in 2021.
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Fannie Mae First Quarter 20212022 Form 10-Q | 7 |
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| MD&A | Key Market Economic Indicators |
GDP, Unemployment Rate and Personal Consumption
(1)Real GDP growth (decline) and personal consumption growth (decline) are based on the quarterly series calculated by the Bureau of Economic Analysis and are subject to revision.
(2)According to the U.S. Bureau of Labor Statistics and subject to revision.
How GDP, the unemployment rateUnemployment Rate and personal consumption can affect our financial resultsPersonal Consumption Can Affect Our Financial Results
•Changes in GDP, the unemployment rate and personal consumption can affect several mortgage market factors, including the demand for both single-family and multifamily housing and the level of loan delinquencies, which in turn can lead to credit losses.
•Economic growth is a key factor for the performance of mortgage-related assets. In a growing economy, employment and income are typically rising, thus allowing existing borrowers to meet payment requirements, existing homeowners to consider purchasing and moving to another home, and renters to consider becoming homeowners. Homebuilding typically increases to meet the rise in demand. Mortgage delinquencies typically fall in an expanding economy, thereby decreasing credit losses.
•In a slowing economy, employment, and income growth slow and housing activity slowstypically slow as an early indicator of reduced economic activity. Typically, as an economic slowdown intensifies, households reduce their spending. This reduction in consumption then accelerates the slowdown. An economic slowdown can lead to employment losses, impairing the ability of borrowers and renters to meet mortgage and rental payments, thus causing loan delinquencies to rise. Home sales and mortgage originations also typically fall in a slowing economy.
•The economic recovery fromGDP declined 1.4% on an annualized basis during the impactfirst quarter of 2022. We currently expect GDP growth in 2022, as we expect the factors that contributed to the decline in the first quarter will not persist for the remainder of the COVID-19 pandemic beganyear. We expect that a modest recession is likely to occur after this year, most likely in the second half of 2020 and continued its momentum2023, resulting in an increase in the first quarter of 2021 as additional government stimulus measures were passed with the American Rescue Plan, vaccination rates increased, and many lockdown measures began tounemployment rate. We expect our economic outlook will be lifted. This led to strong consumer spending and GDP growth. The pace and strength of economic recovery remains uncertain and will depend oninfluenced by a number of factors including consumers’ eagernessthat are subject to return to previously restricted activities, recoverychange, such as the persistence of economic activity outsideinflationary pressures, the U.S.,speed at which expected monetary policy tightening is adjusted, the impact of the Russian invasion of
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| Fannie Mae First Quarter 2022 Form 10-Q | 8 |
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| MD&A | Key Market Economic Indicators |
Ukraine on the global economy, the continuance of supply chain disruptions, the pathdegree to which labor supply expands, and the impact of the COVID-19 pandemic, andpotential emergence of new, more infectious variants of the potential for higher inflation.coronavirus.
See “Risk Factors” in this report and “Risk Factors—Market and Industry Risk” in this report and in our 20202021 Form 10-K for further discussion of risks to our business and financial results associated with interest rates, home prices, housing activity and economic conditions.
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Fannie Mae First Quarter 2021 Form 10-Q | 8 |
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| MD&A | Consolidated Results of Operations |
Consolidated Results of Operations
This section discusses our condensed consolidated results of operations and should be read together with our condensed consolidated financial statements and the accompanying notes.
| | Summary of Condensed Consolidated Results of Operations | Summary of Condensed Consolidated Results of Operations | | Summary of Condensed Consolidated Results of Operations | |
| | | | For the Three Months Ended March 31, | | | | | | For the Three Months Ended March 31, | | |
| | | | | | | | For the Three Months Ended March 31, | |
| | | | 2021 | | 2020 | | Variance | | | | | 2022 | | 2021 | | Variance | |
| | | (Dollars in millions) | | | | (Dollars in millions) | |
Net interest income(1) | | | | $ | 6,742 | | | $ | 5,347 | | | $ | 1,395 | | | |
| Net interest income | | Net interest income | | | $ | 7,399 | | | $ | 6,742 | | | $ | 657 | | |
| Fee and other income | Fee and other income | | | | 87 | | | 120 | | | (33) | | | Fee and other income | | | 83 | | | 87 | | | (4) | | |
| Net revenues | Net revenues | | | | 6,829 | | | 5,467 | | | 1,362 | | | Net revenues | | | 7,482 | | | 6,829 | | | 653 | | |
| Investment gains (losses), net | Investment gains (losses), net | | | | 45 | | | (158) | | | 203 | | | Investment gains (losses), net | | | (102) | | | 45 | | | (147) | | |
Fair value gains (losses), net(1) | | | | 784 | | | (276) | | | 1,060 | | | |
| Fair value gains, net | | Fair value gains, net | | | 480 | | | 784 | | | (304) | | |
| Administrative expenses | Administrative expenses | | | | (748) | | | (749) | | | 1 | | | Administrative expenses | | | (808) | | | (748) | | | (60) | | |
| Credit-related income (expenses): | | | | | |
| Credit-related income (expense): | | Credit-related income (expense): | | | |
| Benefit (provision) for credit losses | Benefit (provision) for credit losses | | | | 765 | | | (2,583) | | | 3,348 | | | Benefit (provision) for credit losses | | | (240) | | | 765 | | | (1,005) | | |
| Foreclosed property income (expense) | | | | 5 | | | (80) | | | 85 | | | |
| Total credit-related income (expenses) | | | | 770 | | | (2,663) | | | 3,433 | | | |
| Foreclosed property income | | Foreclosed property income | | | 39 | | | 5 | | | 34 | | |
| Total credit-related income (expense) | | Total credit-related income (expense) | | | (201) | | | 770 | | | (971) | | |
TCCA fees | TCCA fees | | | | (731) | | | (637) | | | (94) | | | TCCA fees | | | (824) | | | (731) | | | (93) | | |
Credit enhancement expense(2) | Credit enhancement expense(2) | | | | (284) | | | (376) | | | 92 | | | Credit enhancement expense(2) | | | (278) | | | (284) | | | 6 | | |
Change in expected credit enhancement recoveries(3) | Change in expected credit enhancement recoveries(3) | | | | (31) | | | 188 | | | (219) | | | Change in expected credit enhancement recoveries(3) | | | 60 | | | (31) | | | 91 | | |
Other expenses, net(4) | Other expenses, net(4) | | | | (319) | | | (218) | | | (101) | | | Other expenses, net(4) | | | (236) | | | (319) | | | 83 | | |
| Income before federal income taxes | Income before federal income taxes | | | | 6,315 | | | 578 | | | 5,737 | | | Income before federal income taxes | | | 5,573 | | | 6,315 | | | (742) | | |
| Provision for federal income taxes | Provision for federal income taxes | | | | (1,322) | | | (117) | | | (1,205) | | | Provision for federal income taxes | | | (1,165) | | | (1,322) | | | 157 | | |
| Net income | Net income | | | | $ | 4,993 | | | $ | 461 | | | $ | 4,532 | | | Net income | | | $ | 4,408 | | | $ | 4,993 | | | $ | (585) | | |
| Total comprehensive income | Total comprehensive income | | | | $ | 4,966 | | | $ | 476 | | | $ | 4,490 | | | Total comprehensive income | | | $ | 4,401 | | | $ | 4,966 | | | $ | (565) | | |
(1)In January 2021, we began applying fair value hedge accounting. For qualifying hedging relationships, fair value changes attributableTCCA fees refers to movements in the designated benchmark interest rates for hedged mortgage loans and funding debt and the fair value changeexpense recognized as a result of the designated portion10 basis point increase in guaranty fees on all single-family residential mortgages delivered to us on or after April 1, 2012 pursuant to the Temporary Payroll Tax Cut Continuation Act of 2011 and as extended by the paired interest-rate swaps are recognized in “Net interest income.” In prior years, all fair value changes for interest-rate swaps were recognized in “Fair value gains (losses), net.” See “Hedge Accounting Impact” belowInfrastructure Investment and “NoteJobs Act, which we remit to Treasury. For more information on TCCA fees, see "Note 1, Summary of Significant Accounting Policies” for more information about our hedge accounting program.Policies—Related Parties—Transactions with Treasury."
(2)Consists of costs associated with our freestanding credit enhancements, which primarily include our Connecticut Avenue Securities® (“CAS”) and Credit Insurance Risk TransferTM (“CIRTTM”) programs, enterprise-paid mortgage insurance (“EPMI”), and certain lender risk-sharing programs.
(3)Consists of changeIncludes estimated changes in benefits recognized from our freestanding credit enhancements includingas well as any realized amounts.
(4)Consists of debt extinguishment gains and losses, housing trust fund expenses, loan subservicing costs, servicer fees paid in connection with certain loss mitigation activities, and gains and losses from partnership investments.
Hedge Accounting Impact
Our earnings can experience volatility due to interest-rate changes and differing accounting treatments that apply to certain financial instruments on our balance sheet. Specifically, we have exposure to earnings volatility that is driven by changes in interest rates in two primary areas: our net portfolio and our consolidated MBS trusts. The exposure in the net portfolio is primarily driven by changes in the fair value of risk management derivatives, mortgage commitments, and certain assets, primarily securities, that are carried at fair value. The exposure related to our consolidated MBS trusts primarily relates to changes in our credit loss reserves driven by changes in interest rates.
To help address this volatility, we began applying fair value hedge accounting in January 2021 to reduce the current-period impact on our earnings related to changes in interest rates, particularly the London Inter-bank Offered Rate (“LIBOR”) and the Secured Overnight Financing Rate (“SOFR”). Hedge accounting aligns the timing of when we recognize fair value changes in hedged items attributable to these benchmark interest-rate movements with fair value changes in the hedging instrument.
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Fannie Mae First Quarter 20212022 Form 10-Q | 9 |
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| MD&A | Consolidated Results of Operations |
Under our hedge accounting program, we establish fair value hedging relationships between risk management derivatives, specifically interest-rate swaps, and qualifying portfolios of mortgage loans or funding debt. For hedging relationships that are highly effective, we recognize changes in the fair value of the hedged mortgage loans or funding debt attributable to movements in the benchmark interest rate in net interest income. We then offset that impact with the changes in fair value of the designated interest-rate swap. This has the effect of deferring the recognition of gains and losses on the hedging instrument to future periods by recognizing the offsetting gain or loss on the hedged item as a cost basis adjustment on the underlying loans or funding debt at the end of the hedge term. The cost basis adjustment is then subsequently amortized back into earnings. Accordingly, for the first quarter of 2021 we deferred $1.2 billion in fair value losses as cost basis adjustments on our hedged loans and funding debt that will be amortized through “Net interest income” over the contractual life of the respective hedged items.
Although hedge accounting reduces the earnings volatility related to benchmark interest rate movements in any given period, it does not impact the amount of interest-rate-driven gains or losses we will ultimately recognize through earnings.
While we expect the earnings volatility related to benchmark interest rate movements to be meaningfully reduced as a result of our adoption of hedge accounting, earnings variability driven by other factors, such as spreads, remains. In addition, hedge accounting is not designed to address earnings volatility driven by changes in cost basis amortization recognized in net interest income, which can be influenced by interest rate changes.
See “Note 1, Summary of Significant Accounting Policies” and “Note 8, Derivative Instruments” for additional discussion of our fair value hedge accounting policy and related disclosures.
Net Interest Income
Our primary source of net interest income is guaranty fees we receive for managing the credit risk on loans underlying Fannie Mae MBS held by third parties.
Guaranty fees consist of two primary components:
•base guaranty fees that we receive over the life of the loan; and
•upfront fees that we receive at the time of loan acquisition primarily related to single-family loan-level pricingprice adjustments and other fees we receive from lenders, which are amortized into net interest income as cost basis adjustments over the contractual life of the loan. We refer to this as amortization income.
We recognize almost all of our guaranty fee revenue in net interest income because we consolidate the substantial majority of loans underlying our Fannie Mae MBS in consolidated trusts in our condensed consolidated balance sheets. Guaranty fees from these loans overwhelmingly account for the difference between the interest income on loans in consolidated trusts and the interest expense on the debt of consolidated trusts.
The timing of when we recognize amortization income can vary based on a number of factors, the most significant of which is a change in mortgage interest rates. In a rising interest-rate environment, our mortgage loans tend to prepay more slowly, which typically results in lower net amortization income. Conversely, in a declining interest-rate environment, our mortgage loans tend to prepay faster, typically resulting in higher net amortization income.
We also recognize net interest income on the difference between interest income earned on the assets in our retained mortgage portfolio and our other investments portfolio (collectively, our “portfolios”) and the interest expense associated with the debt that funds those assets. See “Retained Mortgage Portfolio” and “Liquidity and Capital Management—Liquidity Management—Other Investments Portfolio” for more information about our portfolios.
As discussed above, beginning in January 2021, weWe recognize fair value changes attributable to movements in benchmark interest rates for hedged mortgage loans and funding debt, and total fair value changes for designatedrelated interest-rate swaps in hedging relationships, as well asa component of net interest income, including the amortization of hedge-related basis adjustments on the associated mortgage loans or funding debt and any related interest accrual on the swap, as a component of net interest income.swaps. The income or expense associated with this activity is presented in the “Income from hedge accountingaccounting” line item in the table below. See “MD&A—Consolidated Results of Operations—Hedge Accounting Impact” and “Note 1, Summary of Significant Accounting Policies” in our 2021 Form 10-K for more information about our hedge accounting program.
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Fannie Mae First Quarter 20212022 Form 10-Q | 10 |
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| MD&A | Consolidated Results of Operations |
The table below displays the components of our net interest income from our guaranty book of business, which we discuss in “Guaranty Book of Business,” and from our portfolios, as well as from hedge accounting.
| | Components of Net Interest Income | Components of Net Interest Income | | Components of Net Interest Income |
| | | For the Three Months Ended March 31, | | | | | | For the Three Months Ended March 31, | |
| | | 2021 | | 2020 | | Variance | | | | | 2022 | | 2021 | | Variance |
| | | (Dollars in millions) | | | | (Dollars in millions) |
| Net interest income from guaranty book of business: | Net interest income from guaranty book of business: | | | | | Net interest income from guaranty book of business: | | |
Base guaranty fee income(1) | Base guaranty fee income(1) | | | $ | 3,197 | | | $ | 2,600 | | | $ | 597 | | | Base guaranty fee income(1) | | | $ | 3,897 | | | $ | 3,197 | | | $ | 700 | |
Base guaranty fee income related to TCCA(2) | | | 731 | | | 637 | | | 94 | | | |
Base guaranty fee income related to TCCA fees(2) | | Base guaranty fee income related to TCCA fees(2) | | | 824 | | | 731 | | | 93 | |
Net amortization income(3) | Net amortization income(3) | | | 2,526 | | | 1,506 | | | 1,020 | | | Net amortization income(3) | | | 2,374 | | | 2,526 | | | (152) | |
| Total net interest income from guaranty book of business | Total net interest income from guaranty book of business | | | 6,454 | | | 4,743 | | | 1,711 | | | Total net interest income from guaranty book of business | | | 7,095 | | | 6,454 | | | 641 | |
Net interest income from portfolios | Net interest income from portfolios | | | 266 | | | 604 | | | (338) | | | Net interest income from portfolios | | | 242 | | | 266 | | | (24) | |
Income from hedge accounting(4) | Income from hedge accounting(4) | | | 22 | | | — | | | 22 | | | Income from hedge accounting(4) | | | 62 | | | 22 | | | 40 | |
| Total net interest income | Total net interest income | | | $ | 6,742 | | | $ | 5,347 | | | $ | 1,395 | | | Total net interest income | | | $ | 7,399 | | | $ | 6,742 | | | $ | 657 | |
| | Income from hedge accounting included in net interest income: | | Income from hedge accounting included in net interest income: | | |
| Fair value losses on designated risk management derivatives in fair value hedges | | Fair value losses on designated risk management derivatives in fair value hedges | | | $ | (1,297) | | | $ | (1,178) | | | $ | (119) | |
Fair value gains on hedged mortgage loans held for investment and debt of Fannie Mae(5) | | Fair value gains on hedged mortgage loans held for investment and debt of Fannie Mae(5) | | | 1,385 | | | 1,159 | | | 226 | |
| Contractual interest income accruals related to interest-rate swaps designated as hedging instruments | | Contractual interest income accruals related to interest-rate swaps designated as hedging instruments | | | 39 | | | 54 | | | (15) | |
| Discontinued hedge-related basis adjustment amortization | | Discontinued hedge-related basis adjustment amortization | | | (65) | | | (13) | | | (52) | |
| Total income from hedge accounting in net interest income | | Total income from hedge accounting in net interest income | | | $ | 62 | | | $ | 22 | | | $ | 40 | |
(1)Excludes revenues generated by the 10 basis point guaranty fee increase we implemented pursuant to the TCCA, the incremental revenue from which is remitted to Treasury and not retained by us.
(2)Represents revenues generated by the 10 basis point guaranty fee increase we implemented pursuant to the TCCA, the incremental revenue from which is remitted to Treasury and not retained by us. See “Note 1, Summary of Significant Accounting Policies” for more information on guidance we received from FHFA regarding TCCA fee amounts that we are not required to accrue or remit to Treasury with respect to delinquent loans backing MBS trusts.
(3)Net amortization income refers to the amortization of premiums and discounts on mortgage loans and debt of consolidated trusts. These cost basis adjustments represent the difference between the initial fair value and the carrying value of these instruments as well as upfront fees we receive at the time of loan acquisition. It does not include the amortization of cost basis adjustments resulting from hedge accounting, which is included in income from hedge accounting.
(4)For the first quarter of 2021,Includes interest income from assets held in our retained mortgage portfolio and our other investments portfolio, as well as other assets used to support lender liquidity. Also includes interest expense on our outstanding Connecticut Avenue Securities debt.
(5)Amounts are recorded as cost basis adjustments on the hedged loans or debt and amortized over the hedged item’s remaining contractual life beginning at the termination of the hedging relationship. See “Note 8, Derivative Instruments” for additional information on the effect of our fair value hedge accounting includes contractual interest accrualsprogram and fair value losses for designated interest-rate swaps of $1,124 million offset by $1,146 million of gains from hedged mortgage loans and funding debt, net of $13 million in hedge-related amortization expense.related disclosures.
Net interest income increased in the first quarter of 20212022 compared with the first quarter of 2020,2021, driven by higher net amortization income and higher base guaranty fee income, partially offset by lower income from portfolios.
•Higher net amortization income. A continued low interest-rate environment in the first quarter of 2021 led to elevated prepayment volumes as loans refinanced, which accelerated the amortization of cost basis adjustments, including upfront fees we recognize over the contractual life of the loans, on mortgage loans of consolidated trusts and the related debt.
•Higher base guaranty fee income. An increase in the size of our guaranty book of business was the primary driver of the increase in base guaranty fee income infor the first quarter of 2022 compared to the first quarter of 2021.
•Lower income from portfolios.net amortization income. Throughout the first quarter of 2022 we were in a higher interest-rate environment and observed lower volumes of refinancing activity compared with the first quarter of 2021. Lower yieldsprepayment volumes result in a slower turnover of our book of business. As a result, we had lower amortization income in the first quarter of 2021 on mortgage loans and assets in our other investments portfolio, partially offset by a decrease in interest expense on our funding debt due to a decrease in average borrowing costs, contributed to a decline in income from portfolios in2022 compared with the first quarter of 2021. We discuss the impact of COVID-19 on our funding needs and funding activity in “Liquidity and Capital Management—Liquidity Management—Debt Funding.”
Though mortgage rates modestly increased over the first quarter of 2021, we continuedWe expect refinancing activity to be in a historically low interest-rate environment, contributing to continued mortgage refinance activity and highsignificantly lower throughout 2022 compared with 2021 levels of amortization income. Because a large portion of our book of business has been and is expected to be originated in this historically low interest-rate environment, we anticipate that refinancing activity will begin to slow in the second half of 2021 as fewer borrowers can benefit from a refinancing as we expect interest rates will likely rise. Lower levels of refinancingto remain elevated throughout 2022, resulting in the future will likely slow the rate at whichfewer borrowers who may benefit from refinancing. As a result, we amortize cost basis adjustments and therefore will likely result inexpect lower amortization income in any one period as the average life of our outstanding book of business may extend as our book of business turns over more slowly. In addition, a slower turnover rate would limit the impact that changes in our guaranty fees have on our future revenues as any changes would take longer to meaningfully impact the average charged guaranty fee on our total book of business.
For loans negatively impacted by the COVID-19 pandemic, we continue to recognize interest income for up to six months of delinquency provided that the loans were either current at March 1, 2020 or originated after March 1, 2020, and collection of principal and interest is reasonably assured. For those loans where we have provided relief beyond six2022 compared with 2021.
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Fannie Mae First Quarter 20212022 Form 10-Q | 11 |
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| MD&A | Consolidated Results of Operations |
months of delinquency, we continue to accrue interest income provided that the loan remains in a forbearance arrangement and collection of principal and interest continues to be reasonably assured. This resulted in a large portion of delinquent loans, including those in a forbearance arrangement, remaining on accrual status as of March 31, 2021. See “Note 3, Mortgage Loans” for more information about our nonaccrual accounting policy and “Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Problem Loan Management” and “Multifamily Business—Multifamily Mortgage Credit Risk Management—Multifamily Problem Loan Management and Foreclosure Prevention” for details about loans in forbearance, as well as on-balance sheet loans past due 90 days or more and continuing to accrue interest.
Analysis of Net Interest Income
The table below displays an analysis of our net interest income, average balances and related yields earned on assets and incurred on liabilities. For most components of the average balances, we use a daily weighted average of unpaid principal balance net of unamortized cost basis adjustments. When daily average balance information is not available, such as for mortgage loans, we use monthly averages. For the first quarter of 2021, net interest income was impacted by the application of fair value hedge accounting beginning in January 2021.
| Analysis of Net Interest Income and Yield(1) | Analysis of Net Interest Income and Yield(1) | Analysis of Net Interest Income and Yield(1) |
| | For the Three Months Ended March 31, | | For the Three Months Ended March 31, |
| | 2021 | | 2020 | | 2022 | | 2021 |
| | 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 | | Average Balance | | Interest Income/ (Expense) | | Average Rates Earned/Paid |
| | (Dollars in millions) | | (Dollars in millions) |
| Interest-earning assets: | Interest-earning assets: | | Interest-earning assets: | |
Mortgage loans of Fannie Mae(2) | Mortgage loans of Fannie Mae(2) | | $ | 109,537 | | | $ | 825 | | | 3.01 | % | | $ | 101,765 | | | $ | 1,016 | | | 3.99 | % | Mortgage loans of Fannie Mae(2) | | $ | 65,984 | | | $ | 629 | | | 3.81 | % | | $ | 109,537 | | | $ | 825 | | | 3.01 | % |
Mortgage loans of consolidated trusts(2) | Mortgage loans of consolidated trusts(2) | | 3,600,116 | | | 22,528 | | | 2.50 | | | 3,259,557 | | | 27,922 | | | 3.43 | | Mortgage loans of consolidated trusts(2) | | 3,955,055 | | | 26,513 | | | 2.68 | | | 3,600,116 | | | 22,528 | | | 2.50 | |
Total mortgage loans(3)(2) | Total mortgage loans(3)(2) | | 3,709,653 | | | 23,353 | | | 2.52 | | | 3,361,322 | | | 28,938 | | | 3.44 | | Total mortgage loans(3)(2) | | 4,021,039 | | | 27,142 | | | 2.70 | | | 3,709,653 | | | 23,353 | | | 2.52 | |
| Mortgage-related securities | Mortgage-related securities | | 7,403 | | | 42 | | | 2.27 | | | 10,875 | | | 99 | | | 3.64 | | Mortgage-related securities | | 5,476 | | | 23 | | | 1.68 | | | 7,403 | | | 42 | | | 2.27 | |
Non-mortgage-related securities(4)(3) | Non-mortgage-related securities(4)(3) | | 164,404 | | | 117 | | | 0.28 | | | 64,806 | | | 248 | | | 1.51 | | Non-mortgage-related securities(4)(3) | | 151,841 | | | 143 | | | 0.38 | | | 164,404 | | | 117 | | | 0.28 | |
| Federal funds sold and securities purchased under agreements to resell or similar arrangements | | 60,103 | | | 8 | | | 0.05 | | | 29,335 | | | 107 | | | 1.44 | | |
| Securities purchased under agreements to resell or similar arrangements | | Securities purchased under agreements to resell or similar arrangements | | 20,372 | | | 6 | | | 0.12 | | | 60,103 | | | 8 | | | 0.05 | |
| Advances to lenders | Advances to lenders | | 10,965 | | | 42 | | | 1.53 | | | 6,416 | | | 34 | | | 2.10 | | Advances to lenders | | 6,957 | | | 26 | | | 1.49 | | | 10,965 | | | 42 | | | 1.53 | |
| Total interest-earning assets | Total interest-earning assets | | $ | 3,952,528 | | | 23,562 | | | 2.38 | % | | $ | 3,472,754 | | | 29,426 | | | 3.39 | % | Total interest-earning assets | | $ | 4,205,685 | | | $ | 27,340 | | | 2.60 | % | | $ | 3,952,528 | | | $ | 23,562 | | | 2.38 | % |
| Interest-bearing liabilities: | Interest-bearing liabilities: | | | | | | | | | | | Interest-bearing liabilities: | | | | | | | | | | |
| Short-term funding debt | Short-term funding debt | | $ | 9,779 | | | (3) | | | 0.12 | % | | $ | 31,842 | | | (102) | | | 1.27 | % | Short-term funding debt | | $ | 4,922 | | | $ | (1) | | | 0.08 | % | | $ | 9,779 | | | $ | (3) | | | 0.12 | % |
Long-term funding debt(2) | Long-term funding debt(2) | | 259,737 | | | (760) | | | 1.17 | | | 135,415 | | | (787) | | | 2.32 | | Long-term funding debt(2) | | 173,420 | | | (550) | | | 1.27 | | | 259,737 | | | (760) | | | 1.17 | |
Connecticut Avenue Securities® (“CAS”) debt | | 14,804 | | | (153) | | | 4.13 | | | 20,536 | | | (289) | | | 5.63 | | |
| CAS debt | | CAS debt | | 10,846 | | | (119) | | | 4.39 | | | 14,804 | | | (153) | | | 4.13 | |
| Total debt of Fannie Mae | Total debt of Fannie Mae | | 284,320 | | | (916) | | | 1.29 | | | 187,793 | | | (1,178) | | | 2.51 | | Total debt of Fannie Mae | | 189,188 | | | (670) | | | 1.42 | | | 284,320 | | | (916) | | | 1.29 | |
| Debt securities of consolidated trusts held by third parties | Debt securities of consolidated trusts held by third parties | | 3,643,848 | | | (15,904) | | | 1.75 | | | 3,281,716 | | | (22,901) | | | 2.79 | | Debt securities of consolidated trusts held by third parties | | 3,966,445 | | | (19,271) | | | 1.94 | | | 3,643,848 | | | (15,904) | | | 1.75 | |
| Total interest-bearing liabilities | Total interest-bearing liabilities | | $ | 3,928,168 | | | (16,820) | | | 1.71 | % | | $ | 3,469,509 | | | (24,079) | | | 2.78 | % | Total interest-bearing liabilities | | $ | 4,155,633 | | | $ | (19,941) | | | 1.92 | % | | $ | 3,928,168 | | | $ | (16,820) | | | 1.71 | % |
| Net interest income/net interest yield | Net interest income/net interest yield | | | | $ | 6,742 | | | 0.68 | % | | | | $ | 5,347 | | | 0.62 | % | Net interest income/net interest yield | | | | $ | 7,399 | | | 0.70 | % | | | | $ | 6,742 | | | 0.68 | % |
(1)Includes the effects of discounts, premiums and other cost basis adjustments. For the first quarter of 2021, includes cost basis adjustments related to hedge accounting.
(2)Includes income of $22 million from hedged funding debt, hedged mortgage loans and paired interest-rate swaps for the first quarter of 2021. Substantially all of this amount is related to the hedged funding debt and paired interest-rate swaps. There was no income or expense from hedge accounting for the first quarter of 2020.
(3)Average balance includes mortgage loans on nonaccrual status. For nonaccrual mortgage loans not subject to the COVID-19-related nonaccrual guidance, interest income is recognized when cash is received. Interest income from yield maintenance revenue and the amortization of loan fees, primarily consisting of upfront cash fees, and yield maintenance fees, was $2.5 billion and $1.6$1.8 billion for the first quarter of 20212022, compared to $2.5 billion for the first quarter of 2021.
(3)Consists of cash, cash equivalents and 2020, respectively.U.S. Treasury securities.
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(4)Consists of cash, cash equivalents and U.S. Treasury securities.
Analysis of Deferred Amortization Income
We initially recognize mortgage loans and debt of consolidated trusts in our condensed consolidated balance sheets at fair value. The difference between the initial fair value and the carrying value of these instruments is recorded as a cost basis adjustment, either as a premium or a discount, in our condensed consolidated balance sheets. We amortize these cost basis adjustments over the contractual lives of the loans or debt. On a net basis, for mortgage loans and debt of consolidated trusts, we are in a premium position with respect to debt of consolidated trusts, which represents deferred income we will recognize in our condensed consolidated statements of operations and comprehensive income as net interestamortization income in future periods.
Deferred Amortization Income Represented by Net Premium Position
on Debt of Consolidated Trusts
(Dollars in billions)
Fair Value Gains (Losses), Net
The estimated fair value of our derivatives, trading securities and other financial instruments carried at fair value may fluctuate substantially from period to period because of changes in interest rates, the yield curve, mortgage and credit spreads and implied volatility, as well as activity related to these financial instruments.
As discussed abovebelow in “Hedge“Impact of Hedge Accounting Impact,on Fair Value Gains (Losses), Net,” we began applyingapply fair value hedge accounting in January 2021 to reduce earnings volatility in our financial statements driven by changes in interest rates. Accordingly, we now recognize the fair value gains and losses and the contractual interest income and expense associated with risk management derivatives designated in qualifying hedging relationships in net interest income. Prior to the implementation of our hedge accounting program, these fair value changes were included in fair value gains (losses), net. Derivatives not designated in hedging relationships are unaffected by this change.
The table below displays the components of our fair value gains and losses.losses, which includes the impact of hedge accounting.
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| Fair Value Gains (Losses), Net |
| | | | For the Three Months Ended March 31, |
| | | | | | 2021 | | 2020 |
| | | | | (Dollars in millions) |
| Risk management derivatives fair value gains (losses) attributable to: | | | | | | | | |
| Net contractual interest income (expense) on interest-rate swaps | | | | | | $ | 43 | | | $ | (106) | |
| Net change in fair value during the period | | | | | | (1,011) | | | (255) | |
| | | | | | | | |
| | | | | | | | |
Impact on risk management derivatives fair value losses, net due to the reclassification of hedged amounts to net interest income(1) | | | | | | 1,124 | | | — | |
| Risk management derivatives fair value gains (losses), net | | | | | | 156 | | | (361) | |
| Mortgage commitment derivatives fair value gains (losses), net | | | | | | 1,082 | | | (993) | |
| Credit enhancement derivatives fair value losses, net | | | | | | (90) | | | (11) | |
| Total derivatives fair value gains (losses), net | | | | | | 1,148 | | | (1,365) | |
| Trading securities gains (losses), net | | | | | | (758) | | | 647 | |
| CAS debt fair value gains (losses), net | | | | | | (1) | | | 637 | |
Other, net(2) | | | | | | 395 | | | (195) | |
| Fair value gains (losses), net | | | | | | $ | 784 | | | $ | (276) | |
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| Fair Value Gains (Losses), Net |
| | For the Three Months Ended March 31, |
| | 2022 | | | | | | 2021 |
| | (Dollars in millions) |
| Risk management derivatives fair value gains (losses) attributable to: | | | | | | | | |
| Net contractual interest income on interest-rate swaps | | $ | 28 | | | | | | | $ | 43 | |
| Net change in fair value during the period | | (1,483) | | | | | | | (1,011) | |
| | | | | | | | |
| | | | | | | | |
| Impact of hedge accounting | | 1,258 | | | | | | | 1,124 | |
| Risk management derivatives fair value gains (losses), net | | (197) | | | | | | | 156 | |
| Mortgage commitment derivatives fair value gains, net | | 1,572 | | | | | | | 1,082 | |
| Credit enhancement derivatives fair value losses, net | | (22) | | | | | | | (90) | |
| Total derivatives fair value gains, net | | 1,353 | | | | | | | 1,148 | |
| Trading securities losses, net | | (1,770) | | | | | | | (758) | |
Long-term debt fair value gains, net(1) | | 1,079 | | | | | | | 373 | |
Other, net(2) | | (182) | | | | | | | 21 | |
| Fair value gains, net | | $ | 480 | | | | | | | $ | 784 | |
(1)Consists of the reclassification of $1,178 million in fair value gains and losses on CAS and $54 million of contractual interest income for designated interest-rate swaps as a resultnon-CAS debt held at fair value.
(2)Consists of fair value hedge accounting.gains and losses on foreign exchange debt and mortgage loans held at fair value.
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Fair value gains, net in the first quarter of 2022 were primarily driven by:
(2)•Consists ofincreases in the fair value of mortgage commitment derivatives due to gains on commitments to sell mortgage-related securities as prices decreased during the commitment period due to rising interest rates and losseswidening of the secondary spread, which is the spread between the 30-year MBS current coupon yield and 10-year U.S. Treasury rate; and
•gains on non-CASthe fair value of long-term debt and mortgage loansof consolidated trusts held at fair value.value, also due to rising interest rates and widening of the secondary spread.
These gains were partially offset by fair value losses in the first quarter of 2022 on trading securities, primarily driven by increases in U.S. Treasury yields during the period, which resulted in losses on fixed-rate securities held in our other investments portfolio.
Fair value gains, net in the first quarter of 2021 were primarily driven by:
•the application of hedge accounting resulting in a reclassification of fair value losses on designated interest-rate swaps to “net interest income;”
•increases in the fair value of mortgage commitment derivatives due to gains on commitments to sell mortgage-related securities as prices decreased during the commitment period as interest rates increased; and
•decreases ingains on the fair value of long-term debt of consolidated trusts held at fair value, which are included in “Other, net,” due to increases in interest rates.
These gains were partially offset by fair value losses in the first quarter of 2021 on trading securities, due toprimarily driven by increases in U.S. Treasury yields during the period, which resulted in losses on fixed-rate securities held in our other investments portfolio.
Impact of Hedge Accounting on Fair Value Gains (Losses), Net
Our earnings can experience volatility due to interest-rate changes and differing accounting treatments that apply to certain financial instruments on our balance sheet. To help address this volatility, we began applying fair value hedge accounting in January 2021 to reduce the current-period impact on our earnings related to changes in specified benchmark interest rates. Hedge accounting aligns the timing of when we recognize fair value changes in hedged items attributable to these benchmark interest-rate movements with fair value changes in the hedging instrument. For additional discussion on the purpose and structure of our hedge accounting program, see “Risk Management—Market Risk Management, including Interest-Rate Risk Management—Earnings Exposure to Interest-Rate Risk.”
The table below displays the amount of contractual interest accruals and fair value losses related to designated interest-rate swaps in the first quarter of 2020 were primarily driven by:
•decreasesqualifying hedging relationships that are recognized in the fair value of mortgage commitment derivatives due to losses on commitments to sell mortgage-related securities as prices increased during the commitment period as“Net interest rates declined, which were partially offset by gains on commitments to buy mortgage-related securities;
•net interest expense on risk management derivatives combined with decreases in the fair value of pay-fixed risk management derivatives due to declines in medium- to longer-term swap rates, which were partially offset by increases in the fair value of receive-fixed risk management derivatives; and
•increases in the fair value of long-term debt of consolidated trusts held at fair value, which are included in “Other, net,” due to declines in interest rates.
These losses were partially offset by fairincome” rather than “Fair value gains (losses), net” as a result of hedge accounting. Derivatives not in the first quarter of 2020 on trading securities and CAS debt, primarily driven by declines in interest rates and widened spreads between CAS debt yields and LIBOR, which resulted in gains on fixed-rate securities held in our other investments portfolio and our CAS debt held at fair value.hedging relationships are not affected.
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| Impact of Hedge Accounting on Fair Value Gains (Losses), Net |
| | For the Three Months Ended March 31, |
| | 2022 | | 2021 | | |
| | (Dollars in millions) |
| Net contractual interest income accruals related to interest-rate swaps designated as hedging instruments recognized in net interest income | | $ | 39 | | | $ | 54 | | | |
| Fair value losses on derivatives designated as hedging instruments recognized in net interest income | | (1,297) | | | (1,178) | | | |
| Fair value losses, net recognized in net interest income from hedge accounting | | $ | (1,258) | | | $ | (1,124) | | | |
Credit-Related Income (Expense)
Our credit-related income or expense can vary substantially from period to period based on a number of factors, such as changes in actual and forecasted home prices or property valuations, fluctuations in actual and forecasted interest rates, borrower payment behavior, events such as natural disasters or pandemics, the types, volume and volumeeffectiveness of our loss mitigation activities, including forbearances and loan modifications, the volume of foreclosures completed and the redesignation of loans from held for investment (“HFI”) to held for sale (“HFS”).
In recent periods, changes in actual and projected interest rates have been a significant driver of our credit-related income (expense) as these changes drive prepayment speeds, which impacts the measurement of the economic concessions granted to borrowers on modified loans. However, pursuant to our adoption of Accounting Standards Update (“ASU”) 2022-02 on January 1, 2022, we prospectively discontinued troubled debt restructuring (“TDR”) accounting and no longer measure the economic concession for restructurings occurring on or after the adoption date. This accounting will also result in the elimination of any existing economic concession related to a loan that was previously designated as a TDR if such loan is restructured on or after January 1, 2022. As a result, we expect that
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| Fannie Mae First Quarter 2022 Form 10-Q | 14 |
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changes in actual and projected interest rates will have less impact on our credit related income (expense) in future periods. See “Note 1, Summary of Significant Accounting Policies—New Accounting Guidance” and “Note 3, Mortgage Loans” for more information about our adoption of ASU 2022-02.
Our credit-related income or expense and our related loss reserves can also be impacted by updates to the models, assumptions and data used in determining our allowance for loan losses. As described below, since the onset of the COVID-19 pandemic in early 2020, our credit-related income or expense and our loss reserves have been significantly affected by our estimates of the impact of the COVID-19 pandemic, which require significant management judgment. Changes in our expectations regarding the length of time borrowers remain in forbearance, and even more significantly, the loss mitigation outcomes of affected borrowers after the forbearance period ends, remain uncertain and can affect the amount of credit-related income or expense we recognize. Although we believe the estimates underlying our allowance are reasonable, we may observe future volatility in these estimates as we continue to observe actual loan performance data and update our models and assumptions relatingassumptions. See “Critical Accounting Estimates” for additional information about how our estimate of credit losses is subject to this unprecedented event.
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uncertainty.Benefit (Provision) for Credit Losses
The table below provides a quantitative analysis of the drivers of our single-family and multifamily benefit or provision for credit losses and the change in expected credit enhancement recoveries. The benefit or provision for credit losses includes our benefit or provision for loan losses, accrued interest receivable losses and our guaranty loss reserves, and excludes credit losses on our available-for-saleavailable for sale (“AFS”) securities. It also excludes the transition impact of adopting Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses, Measurement of Credit Losses on Financial Instruments, (the “CECL standard”), which was recorded as an adjustment to retained earnings as of January 1, 2020. Many of the drivers that contribute to our benefit or provision for credit losses overlap or are interdependent. The attribution shown below is based on internal allocation estimates.
| Components of Benefit (Provision) for Credit Losses and Change in Expected Credit Enhancement Recoveries | | | | | For the Three Months Ended March 31, | | | | For the Three Months Ended March 31, |
| | | | 2021 | | 2020 | | | | 2022 | | 2021 |
| | | (Dollars in millions) | | | (Dollars in millions) |
| Single-family benefit (provision) for credit losses: | Single-family benefit (provision) for credit losses: | | | Single-family benefit (provision) for credit losses: | | |
Changes in loan activity(1)(2) | Changes in loan activity(1)(2) | | | $ | (63) | | | $ | 3 | | Changes in loan activity(1)(2) | | | $ | (339) | | | $ | (63) | |
| Redesignation of loans from HFI to HFS | Redesignation of loans from HFI to HFS | | | 307 | | | 175 | | Redesignation of loans from HFI to HFS | | | 50 | | | 307 | |
| Actual and forecasted home prices | Actual and forecasted home prices | | | 1,179 | | | (921) | | Actual and forecasted home prices | | | 266 | | | 1,179 | |
| Actual and projected interest rates | Actual and projected interest rates | | | (892) | | | 1,257 | | Actual and projected interest rates | | | (603) | | | (892) | |
Changes in assumptions regarding COVID-19 forbearance and change in actual and expected loan delinquencies(1)(3) | | | 127 | | | (2,587) | | |
Other(5) | | | 4 | | | (97) | | |
Release of economic concessions(3) | | Release of economic concessions(3) | | | 400 | | | — | |
Changes in assumptions regarding COVID-19 forbearance and loan delinquencies(2) | | Changes in assumptions regarding COVID-19 forbearance and loan delinquencies(2) | | | — | | | 127 | |
Other(4) | | Other(4) | | | (44) | | | 4 | |
| Single-family benefit (provision) for credit losses | Single-family benefit (provision) for credit losses | | | 662 | | | (2,170) | | Single-family benefit (provision) for credit losses | | | (270) | | | 662 | |
| Multifamily benefit (provision) for credit losses: | | | | | | |
Changes in loan activity(2) | | | (119) | | | (22) | | |
| Multifamily benefit for credit losses: | | Multifamily benefit for credit losses: | | | | | |
Changes in loan activity(1)(2) | | Changes in loan activity(1)(2) | | | (10) | | | (119) | |
| Actual and projected interest rates | Actual and projected interest rates | | | (19) | | | 216 | | Actual and projected interest rates | | | (49) | | | (19) | |
Actual and projected economic data(4) | | | 315 | | | — | | |
| Estimated impact of the COVID-19 pandemic | | | 54 | | | (636) | | |
Other(5) | | | (128) | | | 32 | | |
| Multifamily benefit (provision) for credit losses | | | 103 | | | (410) | | |
| Actual and projected economic data | | Actual and projected economic data | | | 6 | | | 315 | |
Estimated impact of the COVID-19 pandemic(2) | | Estimated impact of the COVID-19 pandemic(2) | | | — | | | 54 | |
Other(4) | | Other(4) | | | 83 | | | (128) | |
| Multifamily benefit for credit losses | | Multifamily benefit for credit losses | | | 30 | | | 103 | |
| Total benefit (provision) for credit losses | Total benefit (provision) for credit losses | | | $ | 765 | | | $ | (2,580) | | Total benefit (provision) for credit losses | | | $ | (240) | | | $ | 765 | |
| Change in expected credit enhancement recoveries:(6) | | | |
Change in expected credit enhancement recoveries:(5) | | Change in expected credit enhancement recoveries:(5) | | |
| Single-family | Single-family | | | $ | (16) | | | $ | 58 | | Single-family | | | $ | 69 | | | $ | (16) | |
| Multifamily | Multifamily | | | (22) | | | 127 | | Multifamily | | | (9) | | | (22) | |
| Total change in expected credit enhancement recoveries | | | $ | (38) | | | $ | 185 | | |
| Change in expected credit enhancement recoveries for active loans | | Change in expected credit enhancement recoveries for active loans | | | $ | 60 | | | $ | (38) | |
|
(1)Prior-period amounts have been adjusted to conform to the current-year presentation to include changes in the allowance due to loan delinquency.
(2)Primarily consists of loan acquisitions, liquidations and amortization of modification concessions granted to borrowers and the impactwrite-offs of FHFA’s Advisory Bulletin 2012-02, “Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention” (the “Advisory Bulletin”).amounts determined to be uncollectible. For multifamily, changes in loan activity also includes changes in the allowance due to loan delinquencies and the impact of changes in debt service coverage ratios (“DSCRs”) based on updated property financial information, which is used to assess loan credit quality.
(3)(2)IncludesBeginning January 1, 2022, changes in assumptions regarding COVID-19 forbearance and loan delinquencies are included in “Changes in loan activity.”
(3)Represents the allowancebenefit from the release of economic concessions related to loans previously designated as TDRs that received loss mitigation arrangements during the quarter due to assumptions regarding loss mitigation when loans exit forbearance, as well as adjustments to modeled results.
(4)For the three months ended March 31, 2020, the impactadoption of actual and projected economic data is grouped with “Estimated impact of the COVID-19 pandemic” as these impacts were driven by the pandemic.
(5)Includes provision for allowance for accrued interest receivable. For single-family, also includes changes in the reserve for guaranty losses that are not separately included in the other components. For multifamily, also includes the impact of credit model enhancements implemented in the first quarter of 2021.ASU 2022-02.
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(6)(4)Includes provision for allowance on accrued interest receivable. For single-family, also includes the impact of changes in assumptions as well as changes in the reserve for guaranty losses that are not separately included in the other components. For multifamily, also includes the impact of model enhancements implemented in the first quarter of 2021.
(5)Includes increase (decrease) in expected credit enhancement recoveries only for active loans. Recoveries received after foreclosure, which are included in “Change in expected credit enhancement recoveries” in “Summary of Condensed Consolidated Results of Operations,” are not included.
Single-Family Benefit (Provision) for Credit Losses
The primary factors that contributed to our single-family provision for credit losses in the first quarter of 2022 were a provision for higher actual and projected interest rates partially offset by a benefit from the release of economic concessions.
•Actual and projected interest rates were higher as of March 31, 2022 compared with December 31, 2021. As mortgage rates increase, we expect a decrease in future prepayments on single-family loans, including modified loans accounted for as TDRs. Lower expected prepayments extend the expected lives of these TDR loans, which increases the expected impairment relating to economic concessions provided on them, resulting in a provision for credit losses.
•This was partially offset by a benefit from the release of economic concessions on loans previously designated as TDRs that received loss mitigation arrangements during the quarter. As described above, pursuant to our adoption of accounting guidance ASU 2022-02, we remove from our allowance the prior economic concession recorded on a loan previously designated as a TDR when the loan is modified or receives or extends a loss mitigation arrangement such as a forbearance plan, repayment plan or other loan workout during the period.
The primary factors that contributed to our single-family benefit for credit losses in the first quarter of 2021 were:
•Benefit from actual and expected home price growth.growth. During the first quarter of 2021, home price growth was unseasonably strong. We also increased our expectations for home price growth on a national basis for full-year 2021. Higher home prices decrease the likelihood that loans will default and reduce the amount of credit loss on loans that do default, which impacts our estimate of losses and ultimately reduces our loss reserves and provision for credit losses. See “Key Market Economic Indicators” for additional information about how home prices affect our credit loss estimates, including a discussion of home price appreciation in the first quarter of 2021 and our home price forecast.
•Benefit from the redesignation of certain reperforming single-family loans from HFI to HFS. After a temporary pause in sales of nonperforming and reperforming loans, we resumed our plans for sales late in the first quarter of 2021. As a result, weHFS. We redesignated certain reperforming single-family loans from HFI to HFS, as we no longer intendintended to hold them for the foreseeable future or to maturity. Upon redesignation of these loans, we recorded the loans at the lower of cost or fair value with a write-off against the allowance for loan losses. Amounts recorded in the allowance related to these loans exceeded the amounts written off, resulting in a benefit for credit losses.
•Benefit from changes in assumptions regarding COVID-19 forbearance and change in actual and expected loan delinquencies.delinquencies. Management continuescontinued to apply its judgment and supplementsupplemented model results as of March 31, 2021, due to continued uncertainty regarding the loss mitigation outcomes of borrowers in forbearance, and uncertainty regarding the future impact of the pandemic, including the efficacy of the COVID-19 vaccines on new strains of the virus and its effect on the economy. Although uncertainty remains,remained, our expected credit losses as a result of the COVID-19 pandemic decreased in the first quarter of 2021, driven by the passage of the American Rescue Plan, which providesprovided additional economic stimulus and helpshelped support the continued economic recovery. In addition, decreased political uncertainty compared with the end of 2020 combined with the increased progression of the COVID-19 vaccines rollout lessened expectations of credit losses. Based on these factors in the first quarter of 2021, management used its judgment to reduce the non-modeled adjustment that was previously applied to the loss projections developed by our credit loss model.
The impact of these factors was partially offset by the impact of the following factor, which reduced our single-family benefit for credit losses recognized in the first quarter of 2021:
•Provision from higher actual and projected interest rates. Although we continue to be in a historically low interest-rate environment, actual and projected as mortgage interest rates roseincreased in the first quarter of 2021. As mortgage interest rates increase, we expect a decrease in future prepayments on single-family loans, including modified loans. Lower expected prepayments extend
Multifamily Benefit for Credit Losses
In the expected livesfirst quarter of modified loans, which increases2022, the expected impairment relating to term and interest-rate concessions provided on these loans, resulting in a provisionmultifamily benefit for credit losses.losses was the result of a reduction in our credit loss reserves primarily due to strong multifamily market fundamentals.
The primary factors that impacted our single-family provisionmultifamily benefit for credit losses in the first quarter of 20202021 were:
•Expected credit losses as a result of the COVID-19 pandemic. Given the rapidly changingBenefit from actual and deteriorating market conditions in the first quarter of 2020 as a result of the unprecedented COVID-19 pandemic, we believed our model used to estimate single-family credit losses as of March 31, 2020 did not capture the entirety of losses we expected to incur relating to COVID-19. As a result, management used its judgment to increase the loss projections developed by our credit loss model to reflect our expectations at that time relating to COVID-19’s impact. These judgments included adjusting our modeled results for (1) the expected impact of widespread forbearance programs, including the rate of borrower participation, and the volume and type of loan modifications as a result thereof, (2) the effect of troubled debt restructuring (“TDR”) accounting relief from the CARES Act, and (3) lower expected prepayment volumes given the sharp rise in unemployment rates that were expected to stay elevated over the near term. In developing the model adjustment, management considered the credit risk profile of our single-family loan book of business at that time, as well as relevant historical credit loss experience during rare or stressfulprojected economic environments.
•A decrease in our expectations for home price growth.data. In the first quarter of 2020, we revised our forecast to reflect near zero home price appreciation on a national basis for 20202021, property value forecasts increased due to COVID-19 market disruptions. Lower home pricescontinued demand for multifamily housing. In addition, improved job growth led to an increase the likelihood that loans will default and increase the amount of credit loss onin
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loans that do default, which impacts our estimate of losses and ultimately increases our loss reserves and provision for credit losses.
•These factors were partially offset by lower actual and projected mortgage interest rates. As mortgage interest rates declined, we expected an increase in future prepayments on single-family loans, including modified loans. As noted above, we adjusted downward our modeled expectation of prepayment volumes due to the COVID-19 pandemic, which reduced this modeled benefit from interest rates.
Multifamily Benefit (Provision) for Credit Losses
The primary factors that impacted our multifamily benefit for credit losses in the first quarter of 2021 were:
•Benefit from actual and projected economic data. In the first quarter of 2021, property value forecasts increased due to continued demand for multifamily housing. In addition, improved job growth led to an increase in projected average property net operating income, which reduced the probability of loan defaultsdefault, resulting in a benefit for credit losses for the quarter.
•Benefit from changes in expected credit losses as a result of the COVID-19 pandemic.pandemic. Similar to our single-family provision for credit losses described above, management continuescontinued to apply its judgment and supplementsupplemented model results as of March 31, 2021, due to continued uncertainty regarding the future impact of the pandemic, including the efficacy of the COVID-19 vaccines on new strains of the virus and its effect on the economy. Although uncertainty remains,remained, our expected credit losses as a result of the COVID-19 pandemic decreased in the first quarter of 2021 driven by positive economic growth and the passage of the American Rescue Plan, which provided additional economic stimulus. Based on these factors in the first quarter of 2021, management used its judgment to reduce the non-modeled adjustment that was previously applied to the loss projections developed by our credit loss model.
Our multifamily provision for credit losses in the first quarter of 2020 was primarily driven by:
•Expected credit losses as a result of the COVID-19 pandemic. Consistent with the 2020 single-family provision for credit losses discussed above, we believed our model used to estimate multifamily credit losses as of March 31, 2020 did not capture the entirety of losses we expected to incur relating to the economic dislocation caused by the COVID-19 pandemic. As a result, management used its judgment to increase the loss projections developed by our credit loss model to reflect our expectations at that time relating to COVID-19’s impact. Accordingly, our multifamily provision for credit losses was primarily driven by higher expected unemployment rates, which we expected would increase the number of loans in forbearance and reduce property net operating income in the near term, thereby decreasing forecasted property values and increasing the probability of loan default. In developing these adjustments, management considered the credit risk profile of our multifamily loan book of business at that time, as well as relevant historical credit loss experience during rare or stressful economic environments.
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Fannie Mae First Quarter 2021 Form 10-Q | 17 |
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| MD&A | Consolidated Balance Sheet Analysis |
Consolidated Balance Sheet Analysis
This section discusses our condensed consolidated balance sheets and should be read together with our condensed consolidated financial statements and the accompanying notes.
| | Summary of Condensed Consolidated Balance Sheets | Summary of Condensed Consolidated Balance Sheets | Summary of Condensed Consolidated Balance Sheets |
| | As of | | | As of | |
| | March 31, 2021 | | December 31, 2020 | | Variance | | March 31, 2022 | | December 31, 2021 | | Variance |
| | (Dollars in millions) | | (Dollars in millions) |
Assets | Assets | | Assets | |
| Cash and cash equivalents and federal funds sold and securities purchased under agreements to resell or similar arrangements | | $ | 81,475 | | | $ | 66,537 | | | $ | 14,938 | | |
| Cash and cash equivalents and securities purchased under agreements to resell or similar arrangements | | Cash and cash equivalents and securities purchased under agreements to resell or similar arrangements | | $ | 54,237 | | | $ | 63,191 | | | $ | (8,954) | |
| Restricted cash and cash equivalents | Restricted cash and cash equivalents | | 87,803 | | | 77,286 | | | 10,517 | | Restricted cash and cash equivalents | | 52,651 | | | 66,183 | | | (13,532) | |
| Investments in securities | Investments in securities | | 112,758 | | | 138,239 | | | (25,481) | | Investments in securities | | 85,435 | | | 89,043 | | | (3,608) | |
| Mortgage loans: | Mortgage loans: | | Mortgage loans: | |
| Of Fannie Mae | Of Fannie Mae | | 111,097 | | | 117,911 | | | (6,814) | | Of Fannie Mae | | 66,189 | | | 66,127 | | | 62 | |
| Of consolidated trusts | Of consolidated trusts | | 3,638,411 | | | 3,546,533 | | | 91,878 | | Of consolidated trusts | | 3,990,248 | | | 3,907,744 | | | 82,504 | |
| Allowance for loan losses | Allowance for loan losses | | (9,628) | | | (10,552) | | | 924 | | Allowance for loan losses | | (5,899) | | | (5,629) | | | (270) | |
| Mortgage loans, net of allowance for loan losses | Mortgage loans, net of allowance for loan losses | | 3,739,880 | | | 3,653,892 | | | 85,988 | | Mortgage loans, net of allowance for loan losses | | 4,050,538 | | | 3,968,242 | | | 82,296 | |
| Deferred tax assets, net | Deferred tax assets, net | | 12,516 | | | 12,947 | | | (431) | | Deferred tax assets, net | | 13,075 | | | 12,715 | | | 360 | |
| Other assets | Other assets | | 35,671 | | | 36,848 | | | (1,177) | | Other assets | | 29,093 | | | 29,792 | | | (699) | |
| Total assets | Total assets | | $ | 4,070,103 | | | $ | 3,985,749 | | | $ | 84,354 | | Total assets | | $ | 4,285,029 | | | $ | 4,229,166 | | | $ | 55,863 | |
| Liabilities and equity | Liabilities and equity | | | | | | | Liabilities and equity | | | | | | |
| Debt: | Debt: | | Debt: | |
| Of Fannie Mae | Of Fannie Mae | | $ | 273,442 | | | $ | 289,572 | | | $ | (16,130) | | Of Fannie Mae | | $ | 180,169 | | | $ | 200,892 | | | $ | (20,723) | |
| Of consolidated trusts | Of consolidated trusts | | 3,740,538 | | | 3,646,164 | | | 94,374 | | Of consolidated trusts | | 4,028,628 | | | 3,957,299 | | | 71,329 | |
| Other liabilities | Other liabilities | | 25,898 | | | 24,754 | | | 1,144 | | Other liabilities | | 24,474 | | | 23,618 | | | 856 | |
| Total liabilities | Total liabilities | | 4,039,878 | | | 3,960,490 | | | 79,388 | | Total liabilities | | 4,233,271 | | | 4,181,809 | | | 51,462 | |
| Fannie Mae stockholders’ equity: | Fannie Mae stockholders’ equity: | | Fannie Mae stockholders’ equity: | |
| Senior preferred stock | Senior preferred stock | | 120,836 | | | 120,836 | | | — | | Senior preferred stock | | 120,836 | | | 120,836 | | | — | |
| Other net deficit | Other net deficit | | (90,611) | | | (95,577) | | | 4,966 | | Other net deficit | | (69,078) | | | (73,479) | | | 4,401 | |
| Total equity | Total equity | | 30,225 | | | 25,259 | | | 4,966 | | Total equity | | 51,758 | | | 47,357 | | | 4,401 | |
| Total liabilities and equity | Total liabilities and equity | | $ | 4,070,103 | | | $ | 3,985,749 | | | $ | 84,354 | | Total liabilities and equity | | $ | 4,285,029 | | | $ | 4,229,166 | | | $ | 55,863 | |
Cash and Cash Equivalents
Cash and Federal Funds Soldcash equivalents declined from December 31, 2021 to March 31, 2022 as we used cash and Securities Purchased under Agreementsother short-term liquid assets that accumulated in prior periods, as well as our earnings, to Resell or Similar Arrangements, fund our operations and to pay off maturing debt during the first quarter of 2022. For further discussion, see “Liquidity and Capital Management—Liquidity Management.”
| | | | | | | | |
| Fannie Mae First Quarter 2022 Form 10-Q | 17 |
| | | | | | | | |
| MD&A | Consolidated Balance Sheet Analysis |
Restricted Cash and Cash Equivalents and Investments in Securities
The increase inRestricted cash and cash equivalents and federal funds sold and securities purchased under agreements to resell or similar arrangementsdeclined from December 31, 20202021 to March 31, 2021 was offset by a decrease in investments in securities, driven by a shift to investments in federal funds sold and securities purchased under agreements to resell and similar arrangements as of March 31, 2021 as compared with investments in U.S. Treasury securities at December 31, 2020. The overall net amount decreased2022 primarily driven by a decrease in funding debt issuances during the periodprepayments due to lower refinance volumes for loans of consolidated trusts, resulting in netlower cash outflowsbalances held in trust at period end. For information on our accounting policy for the quarter, which we discussrestricted cash and cash equivalents, see “Note 1, Summary of Significant Accounting Policies” in “Liquidity and Capital Management—Cash Flows.”our 2021 Form 10-K.
Mortgage Loans, Net of Allowance
The mortgage loans reported in our condensed consolidated balance sheets are classified as either HFS or HFI and include loans owned by Fannie Mae and loans held in consolidated trusts.
Mortgage loans, net of allowance for loan losses increased as of March 31, 20212022 compared with December 31, 2020, primarily2021, driven by an increase in mortgage loans due toloan acquisitions primarily from continued high refinancing activity, outpacing liquidations and sales.
For additional information on our mortgage loans, see “Note 3, Mortgage Loans,” and for additional information on changes in our allowance for loan losses, see “Note 4, Allowance for Loan Losses.”
| | | | | | | | |
Fannie Mae First Quarter 2021 Form 10-Q | 18 |
| | | | | | | | |
| MD&A | Consolidated Balance Sheet Analysis |
Debt
The decrease in debt of Fannie Mae from December 31, 20202021 to March 31, 20212022 was primarily due to decreasedthe maturity of long-term debt, which was not replaced with new issuances as our funding needs.needs remained low. The increase in debt of consolidated trusts from December 31, 20202021 to March 31, 20212022 was primarily driven by sales of Fannie Mae MBS, which are accounted for as issuances of debt of consolidated trusts in our condensed consolidated balance sheets, since the MBS certificate ownership is transferred from us to a third party. See “Liquidity and Capital Management—Liquidity Management—Debt Funding” for a summary of activity in short-term and long-term debt of Fannie Mae and a comparison of the mix between our outstanding short-term and long-term debt.Mae. Also see “Note 7, Short-Term and Long-Term Debt” for additional information on our total outstanding debt.
Stockholders’ Equity
Our stockholders’ equity (also referred to as our net equityworth) increased to $51.8 billion as of March 31, 20212022, compared with $47.4 billion as of December 31, 2020 by2021, due to the amount of our$4.4 billion in comprehensive income recognized during the first quarter of 2021.2022.
The aggregate liquidation preference of the senior preferred stock increased to $146.8$168.9 billion as of March 31, 20212022 and will further increase to $151.7$173.3 billion as of June 30, 20212022 due to the $5.0$4.4 billion increase in our net worth during the first quarter of 2021.2022. For more information about how this liquidation preference is determined, see “Business—Conservatorship, Treasury Agreements and Housing Finance Reform—Treasury Agreements—Senior Preferred Stock” in our 2021 Form 10-K and “Liquidity and Capital Management—Capital Management—Capital Activity” in this report.
Retained Mortgage Portfolio
We use our retained mortgage portfolio primarily to provide liquidity to the mortgage market through our whole loan conduit and to support our loss mitigation activities, particularly in times of economic stress when other sources of liquidity to the mortgage market may decrease or withdraw. Previously, we also used our retained mortgage portfolio for investment purposes.
Our retained mortgage portfolio consists of mortgage loans and mortgage-related securities that we own, including Fannie Mae MBS and non-Fannie Mae mortgage-related securities. Assets held by consolidated MBS trusts that back mortgage-related securities owned by third parties are not included in our retained mortgage portfolio.
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| Fannie Mae First Quarter 2022 Form 10-Q | 18 |
| | | | | | | | |
| MD&A | Retained Mortgage Portfolio |
The chart below separates the instruments within our retained mortgage portfolio, measured by unpaid principal balance, into three categories based on each instrument’s use:
•Lender liquidity, which includes balances related to our whole loan conduit activity, supports our efforts to provide liquidity to the single-family and multifamily mortgage markets.
•Loss mitigation supports our loss mitigation efforts through the purchase of delinquent loans from our MBS trusts.
•Other represents assets that were previously purchased for investment purposes. The majority of the balance of “Other” as of March 31, 20212022 consisted of Fannie Mae reverse mortgage securities and reverse mortgage loans. We expect the amount of assets in “Other” will continue to decline over time as they liquidate, mature or are sold.
Retained Mortgage Portfolio
(Dollars in billions)
The modest decrease in our retained mortgage portfolio as of March 31, 20212022 compared with December 31, 20202021 was primarily due to payoffs duringa decrease in our lender liquidity portfolio driven by sales of Fannie Mae securities and a decline in mortgage refinance activity leading to lower acquisition volumes through the first quarter of 2021whole loan conduit. This was partially offset by an increase in our loss mitigation loansportfolio driven by mortgage refinance activity.an increase in our purchase of delinquent loans from MBS trusts as they exit COVID-19-related forbearance.
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Fannie Mae First Quarter 20212022 Form 10-Q | 19 |
| | | | | | | | |
| MD&A | Retained Mortgage Portfolio |
The table below displays the components of our retained mortgage portfolio, measured by unpaid principal balance. Based on the nature of the asset, these balances are included in either “Investments in securities” or “Mortgage loans of Fannie Mae” in our Summary of Condensed Consolidated Balance Sheets.Sheets shown above.
| Retained Mortgage Portfolio | | | As of | | As of |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | (Dollars in millions) | | (Dollars in millions) |
| Lender liquidity: | Lender liquidity: | | Lender liquidity: | |
Agency securities(1) | Agency securities(1) | | $ | 34,849 | | | $ | 34,810 | | | Agency securities(1) | | $ | 27,717 | | | $ | 34,509 | |
| Mortgage loans | Mortgage loans | | 45,194 | | | 45,895 | | | Mortgage loans | | 13,340 | | | 16,174 | |
| Total lender liquidity | Total lender liquidity | | 80,043 | | | 80,705 | | | Total lender liquidity | | 41,057 | | | 50,683 | |
Loss mitigation mortgage loans(2) | Loss mitigation mortgage loans(2) | | 53,267 | | | 56,315 | | | Loss mitigation mortgage loans(2) | | 41,730 | | | 37,601 | |
| Other: | Other: | | Other: | |
| Reverse mortgage loans | Reverse mortgage loans | | 11,618 | | | 12,388 | | | Reverse mortgage loans | | 9,420 | | | 9,908 | |
| Mortgage loans | Mortgage loans | | 4,079 | | | 4,881 | | | Mortgage loans | | 3,780 | | | 3,954 | |
Reverse mortgage securities(3) | Reverse mortgage securities(3) | | 7,118 | | | 7,185 | | | Reverse mortgage securities(3) | | 5,863 | | | 6,146 | |
| Private-label and other securities | | 450 | | | 473 | | | |
| Fannie Mae-wrapped private-label securities | | 510 | | | 521 | | | |
| Mortgage revenue bonds | | 162 | | | 182 | | | |
Other(4) | | Other(4) | | 900 | | | 929 | |
| | Total other | Total other | | 23,937 | | | 25,630 | | | Total other | | 19,963 | | | 20,937 | |
| Total retained mortgage portfolio | Total retained mortgage portfolio | | $ | 157,247 | | | $ | 162,650 | | | Total retained mortgage portfolio | | $ | 102,750 | | | $ | 109,221 | |
| | Retained mortgage portfolio by segment: | Retained mortgage portfolio by segment: | | Retained mortgage portfolio by segment: | |
| Single-family mortgage loans and mortgage-related securities | Single-family mortgage loans and mortgage-related securities | | $ | 150,397 | | | $ | 154,943 | | | Single-family mortgage loans and mortgage-related securities | | $ | 95,704 | | | $ | 101,518 | |
| Multifamily mortgage loans and mortgage-related securities | Multifamily mortgage loans and mortgage-related securities | | $ | 6,850 | | | $ | 7,707 | | | Multifamily mortgage loans and mortgage-related securities | | $ | 7,046 | | | $ | 7,703 | |
(1)Consists of Fannie Mae, Freddie Mac and Ginnie Mae mortgage-related securities, including Freddie Mac securities guaranteed by Fannie Mae. Excludes Fannie Mae and Ginnie Mae reverse mortgage securities and Fannie Mae-wrapped private-label securities.
(2)Includes single-family loans classified as TDRs that were on accrual status of $26.1 billion and $29.4 billion as of March 31, 2021 and December 31, 2020, respectively, and single-family loans on nonaccrual status of $19.6$10.1 billion as of March 31, 2021 and December 31, 2020. Includes multifamily loans classified as TDRs that were on accrual status of $24 million and $20 million as of March 31, 2021 and December 31, 2020, respectively,$11.0 billion, and multifamily loans on nonaccrual status of $533$261 million and $536$340 million as of March 31, 20212022 and December 31, 2020,2021, respectively.
(3)Consists of Fannie Mae and Ginnie Mae reverse mortgage securities.
(4)Consists of private-label and other securities, Fannie Mae-wrapped private-label securities and mortgage revenue bonds.
The amount of mortgage assets that we may own is capped at $250 billion and will decrease to $225 billion on December 31, 2022 under the terms of our senior preferred stock purchase agreement with Treasury. WeIn addition, we are currently managingrequired to cap our business to amortgage assets at $225 billion cap pursuant to instructionsper instruction from FHFA. See “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” in our 20202021 Form 10-K for additional information on our portfolio cap.
We include 10% of the notional value of interest-only securities in calculating the size of the retained portfolio for the purpose of determining compliance with the senior preferred stock purchase agreement retained portfolio limits and associated FHFA guidance. As of March 31, 2021,2022, 10% of the notional value of our interest-only securities was $2.2$1.9 billion, which is not included in the table above.
Under the terms of our MBS trust documents, we have the option or, in some instances, the obligation, to purchase mortgage loans that meet specific criteria from an MBS trust. The purchase price for these loans is the unpaid principal balance of the loan plus accrued interest. If a delinquent loan remains in a single-family MBS trust, the servicer is responsible for advancing the borrower’s missed scheduled principal and interest payments to the MBS holders for up to four months, after which time we must make these missed payments. In addition, we must reimburse servicers for advanced principal and interest payments. The cost of purchasing most delinquent loans from a single-family Fannie Mae MBS trust and holding them in our retained mortgage portfolio is currently less than the cost of advancing delinquent payments to security holders.
Except for loans that are in forbearance or that have been granted certain other typesIn support of our loss mitigation options (such as a repayment plan or payment deferral),strategies, we have historically purchased $6.5 billion of loans from our single-family MBS trusts in the first quarter of 2022, the substantial majority of which were delinquent, compared with $1.5 billion of loans purchased from single-family MBS trusts when they become four consecutive monthly payments delinquent. In September 2020, FHFA instructed both usin the first quarter of 2021. We expect the amount of loans we buy out of trusts will increase in 2022 relative to the prior year as loans exiting COVID-19-related forbearance will lead to an increase in the number of loan modifications. The size of our retained mortgage portfolio will be impacted by the volume of loans we ultimately buy, the timing of those purchases, and Freddie Macthe length of time those loans remain in our retained mortgage
| | | | | | | | |
Fannie Mae First Quarter 20212022 Form 10-Q | 20 |
| | | | | | | | |
| MD&A | Retained Mortgage Portfolio |
to extend the timeframe for our single-family delinquent loan buyout policy to 24 consecutively missed monthly payments (that is, loans that are 24 months past due) effective January 1, 2021. We expect that in most cases we nevertheless will purchase delinquent loans from single-family MBS trusts prior to the 24-month deadline under one of the exceptions to the FHFA directive, which includes loans that are permanently modified, loans subject to a short-sale or deed-in-lieu of foreclosure, loans that are paid in full and loans referred to foreclosure.
In support of our loss mitigation strategies, we purchased $1.5 billion of loans from our single-family MBS trusts in the first quarter of 2021, the substantial majority of which were delinquent, compared with $3.0 billion of loans purchased from single-family MBS trusts in the first quarter of 2020. We expect the amount of loans we buy out of trusts may increase, particularly in 2022, compared with 2020 as a result of COVID-19-related loan delinquencies and loss mitigation strategies, which may increase the size of our retained mortgage portfolio. However, the magnitude of any increase in our retained mortgage portfolio will depend on the volume of loans we ultimately buy, the timing of those purchases, and the length of time those loans remain in our retained mortgage portfolio. These factors are highly uncertain and depend on a number of things, including the length of time loans remain in forbearance, the duration of foreclosure suspensions, and the nature and success of our loss mitigation activities, including payment deferrals and repayment plans, which do not require us to purchase loans out of trust. Because of our mortgage asset limit, our business activities may be constrained. See “Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Problem Loan Management—Single-Family Loans in Forbearance” and “Multifamily Business—Multifamily Mortgage Credit Risk Management—Multifamily Problem Loan Management and Foreclosure Prevention”Prevention—Multifamily Loan Forbearance” for information on our loans in forbearance.
Guaranty Book of Business
Our “guaranty book of business” consists of:
•Fannie Mae MBS outstanding, excluding the portions of any structured securities we issue that are backed by Freddie Mac securities;
•mortgage loans of Fannie Mae held in our retained mortgage portfolio; and
•other credit enhancements that we provide on mortgage assets.
“Total Fannie Mae guarantees” consists of:
•our guaranty book of business; and
•the portions of any structured securities we issue that are backed by Freddie Mac securities.
We and Freddie Mac issue single-family uniform mortgage-backed securities, or “UMBS®.” In this report, we use the term “Fannie Mae-issued UMBS” to refer to single-family Fannie Mae MBS that are directly backed by fixed-rate mortgage loans and generally eligible for trading in the to-be-announced (“TBA”) market. We use the term “Fannie Mae MBS” or “our MBS” to refer to any type of mortgage-backed security that we issue, including UMBS, Supers®, Real Estate Mortgage Investment Conduit securities (“REMICs”) and other types of single-family or multifamily mortgage-backed securities.
Some Fannie Mae MBS that we issue are backed in whole or in part by Freddie Mac securities. When we resecuritize Freddie Mac securities into Fannie Mae-issued structured securities, such as Supers and REMICs, our guaranty of principal and interest extends to the underlying Freddie Mac securities. However, Freddie Mac continues to guarantee the payment of principal and interest on the underlying Freddie Mac securities that we have resecuritized. We do not charge an incremental guaranty fee to include Freddie Mac securities in the structured securities that we issue. References to our single-family guaranty book of business in this report exclude Freddie Mac-acquired mortgage loans underlying Freddie Mac securities that we have resecuritized.
Our issuance of structured securities backed in whole or in part by Freddie Mac securities creates additional off-balance sheet exposure. Our guaranty extends to the underlying Freddie Mac security included in the structured security, but we do not have control over the Freddie Mac mortgage loan securitizations. Because we do not have the power to direct matters (primarily the servicing of mortgage loans) that impact the credit risk to which we are exposed, which constitute control of these securitization trusts, we do not consolidate these trusts in our condensed consolidated balance sheet, giving rise to off-balance sheet exposure. We expect our off-balance sheet exposure to Freddie Mac securities to increase as we issue more structured securities backed by Freddie Mac securities in the future. See “Liquidity and Capital Management—Liquidity Management—Off-Balance Sheet Arrangements” and “Note 6, Financial Guarantees” for information regarding our maximum exposure to loss on unconsolidated Fannie Mae MBS and Freddie Mac securities.
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Fannie Mae First Quarter 20212022 Form 10-Q | 21 |
| | | | | | | | |
| MD&A | Guaranty Book of Business |
The table below displays the composition of our guaranty book of business based on unpaid principal balance. Our single-family guaranty book of business accounted for 89%90% and 90%89% of our guaranty book of business as of March 31, 20212022 and December 31, 2020,2021, respectively.
| Composition of Fannie Mae Guaranty Book of Business | | | As of | | As of |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | Single-Family | | Multifamily | | Total | | Single-Family | | Multifamily | | Total | | Single-Family | | Multifamily | | Total | | Single-Family | | Multifamily | | Total |
| | (Dollars in millions) | | (Dollars in millions) |
Conventional guaranty book of business(1) | Conventional guaranty book of business(1) | | $ | 3,380,576 | | | $ | 399,596 | | | $ | 3,780,172 | | | $ | 3,305,030 | | | $ | 386,379 | | | $ | 3,691,409 | | Conventional guaranty book of business(1) | | $ | 3,607,454 | | | $ | 423,261 | | | $ | 4,030,715 | | | $ | 3,536,613 | | | $ | 419,463 | | | $ | 3,956,076 | |
Government guaranty book of business(2) | Government guaranty book of business(2) | | 19,659 | | | 2,180 | | | 21,839 | | | 20,777 | | | 2,268 | | | 23,045 | | Government guaranty book of business(2) | | 16,080 | | | 684 | | | 16,764 | | | 16,777 | | | 718 | | | 17,495 | |
| Guaranty book of business | Guaranty book of business | | 3,400,235 | | | 401,776 | | | 3,802,011 | | | 3,325,807 | | | 388,647 | | | 3,714,454 | | Guaranty book of business | | 3,623,534 | | | 423,945 | | | 4,047,479 | | | 3,553,390 | | | 420,181 | | | 3,973,571 | |
Freddie Mac securities guaranteed by Fannie Mae(3) | Freddie Mac securities guaranteed by Fannie Mae(3) | | 154,623 | | | — | | | 154,623 | | | 137,316 | | | — | | | 137,316 | | Freddie Mac securities guaranteed by Fannie Mae(3) | | 236,067 | | | — | | | 236,067 | | | 212,259 | | | — | | | 212,259 | |
| Total Fannie Mae guarantees | Total Fannie Mae guarantees | | $ | 3,554,858 | | | $ | 401,776 | | | $ | 3,956,634 | | | $ | 3,463,123 | | | $ | 388,647 | | | $ | 3,851,770 | | Total Fannie Mae guarantees | | $ | 3,859,601 | | | $ | 423,945 | | | $ | 4,283,546 | | | $ | 3,765,649 | | | $ | 420,181 | | | $ | 4,185,830 | |
(1)Refers to mortgage loans and mortgage-related securities that are not guaranteed or insured, in whole or in part, by the U.S. government.
(2)Refers to mortgage loans and mortgage-related securities guaranteed or insured, in whole or in part, by the U.S. government.
(3)Consists of off-balance sheet arrangements of approximately (i) $126.0$196.0 billion and $110.7$177.8 billion in unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers as of March 31, 20212022 and December 31, 2020,2021, respectively; and (ii) $28.7$40.1 billion and $26.6$34.5 billion in unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs as of March 31, 20212022 and December 31, 2020,2021, respectively.
The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended, including by the Federal Housing Finance Regulatory Reformand Economic Recovery Act of 2008 (together, the “GSE Act”) requires us to set aside each year an amount equal to 4.2 basis points of the unpaid principal balance of our new business purchases and to pay this amount to specified U.S. Department of Housing and Urban Development (“HUD”)HUD and Treasury funds in support of affordable housing. In March 2021,2022, we paid $603$598 million to the funds based on our new business purchases in 2020.2021. For the first quarter of 2021,2022, we recognized an expense of $177$107 million related to this obligation based on $422.2$255.6 billion in new business purchases during the period. We expect to pay this amount to the funds in 2022,2023, plus additional amounts to be accrued based on our new business purchases in the remaining nine months of 2021.2022. See “Business—Legislation and Regulation—GSE Act and Other Legislative and RegulatoryGSE-Focused Matters—Affordable Housing Allocations” in our 20202021 Form 10-K for more information regarding this obligation.
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Fannie Mae First Quarter 2021 Form 10-Q | 22 |
Business Segments
We have two reportable business segments: Single-Family and Multifamily. The Single-Family business operates in the secondary mortgage market relating to single-family mortgage loans, which are secured by properties containing four or fewer residential dwelling units. The Multifamily business operates in the secondary mortgage market relating primarily to multifamily mortgage loans, which are secured by properties containing five or more residential units.
The chart below displays the net revenues and net income for each of our business segments for the first quarter of 20202021 compared with the first quarter of 2021.2022. Net revenues consist of net interest income and fee and other income.
Business Segment Net Revenues and Net Income
(Dollars in billions)
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| Fannie Mae First Quarter 2022 Form 10-Q | 22 |
In the following sections, we describe each segment’s business metrics, financial results and credit performance. For an overview of how we are compensated for and manage the risk of credit losses through the life cycle of our loans and how we measure our credit risk, see "Business—“Business—Managing Mortgage Credit Risk” in our 20202021 Form 10-K.
Single-Family Business
Our Single-Family business provides liquidity to the mortgage market primarily by acquiring single-family loans from lenders and securitizing those loans into Fannie Mae MBS, which are either delivered to the lenders or sold to investors or dealers.
This section supplements and updates information regarding our Single-Family business segment in our 20202021 Form 10-K. See “MD&A—Single-Family Business” in our 20202021 Form 10-K for additional information regarding the primary business activities, customerslenders, investors and competition of our Single-Family business.
Single-Family Mortgage Market
Housing activity slowed modestlywas relatively flat in the first quarter of 20212022 compared with the fourth quarter of 2020. Total home sales and single-family housing starts moderated due to near record-low inventory of available homes for sale, inclement weather in February, and construction capacity constraints. However, we expect solid gains in total home sales and single-family housing starts for full-year 2021 compared with 2020. Mortgage rates increased in the first quarter of 2021,
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Fannie Mae First Quarter 2021 Form 10-Q | 23 |
| | | | | | | | |
| MD&A | Single-Family Business | Single-Family Mortgage Market |
and we expect additional increases this year, which will likely lead to a decline in total refinance originations for 2021 compared with 2020.
2021. Total existing home sales averaged 6.36.1 million units annualized in the first quarter of 2021,2022, compared with 6.76.2 million units in the fourth quarter of 2020,2021, according to data from the National Association of REALTORS®. According to the U.S. Census Bureau, new single-family home sales increased duringaveraged an annualized rate of approximately 814,000 units in the first quarter of 2021, averaging an annualized rate of 959,000 units,2022, compared with 924,000approximately 764,000 units in the fourth quarter of 2020.2021.
The 30-year fixed mortgage rate averaged 3.08%4.17% in March 2021,2022, compared with 2.68%3.10% in December 2020,2021, according to Freddie Mac’s Primary Mortgage Market Survey®.
We forecast that total originations in the U.S. single-family mortgage market in 20212022 will decrease from 20202021 levels by approximately 12%37%, from an estimated $4.54$4.48 trillion in 20202021 to $4.00$2.82 trillion in 2021,2022, and that the amount of refinance originations in the U.S. single-family mortgage market will decrease from an estimated $2.89$2.61 trillion in 20202021 to $2.11 trillion$889 billion in 2021. Declining origination volume reduces the number of mortgages available for us to acquire, which affects our business volume.2022. See “Key Market Economic Indicators” for additional discussion of how housing activity can affect our financial results and the uncertainties that may affect our forecasts and expectations.
Single-Family Market Activity
Single-Family Mortgage-Related Securities Issuances Share
Our single-family Fannie Mae MBS issuances were $243.1 billion for the first quarter of 2022, compared with $403.7 billion for the first quarter of 2021, compared with $185.7 billion for the first quarter of 2020.2021. This increasedecrease was driven by a highlower volume of refinance activity in the first quarter of 20212022 due to historically lowincreasing mortgage rates. Based on the latest data available, the chart below displays our estimated share of single-family mortgage-related securities issuances in the first quarter of 20212022 as compared with that of our primary competitors for the issuance of single-family mortgage-related securities.
Single-Family Mortgage-Related Securities Issuances Share
First Quarter 20212022
We estimate our share of single-family mortgage-related securities issuances was 41%37% in the fourth quarter of 20202021 and 37%41% in the first quarter of 2020.2021.
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| Fannie Mae First Quarter 2022 Form 10-Q | 23 |
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| MD&A | Single-Family Business | Single-Family Business Metrics |
Presentation of Our Single-Family Guaranty Book of Business
For purposes of the information reported in this “Single-Family Business” section, we measure the single-family guaranty book of business using the unpaid principal balance of our mortgage loans underlying Fannie Mae MBS outstanding. By contrast, the single-family guaranty book of business presented in the “Composition of Fannie Mae Guaranty Book of Business” table in the “Guaranty Book of Business” section is based on the unpaid principal balance of the Fannie Mae MBS outstanding, rather than the unpaid principal balance of the underlying mortgage loans. These amounts differ primarily as a result of payments we receive on underlying loans that have not yet been remitted to the MBS holders or instances where we have advanced missed borrower payments on mortgage loans to make required distributions to related MBS holders. As measured for purposes of the information reported below, our single-family conventional guaranty book of business was $3,272.0$3,567.4 billion as of March 31, 20212022 and $3,200.9$3,483.1 billion as of December 31, 2020.
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Fannie Mae First Quarter 2021 Form 10-Q | 24 |
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| MD&A | Single-Family Business | Single-Family Business Metrics |
2021.Single-Family Business Metrics
Net interest income for our Single-Family business is driven by the guaranty fees we charge and the size of our single-family conventional guaranty book of business. Our business volume and growth in our guaranty book of business is affected by the rate of growth in total U.S. residential mortgage debt outstanding, the size of the U.S. residential mortgage market and our share of mortgage acquisitions. The guaranty fees we charge are based on the characteristics of the loans we acquire. We may adjust our guaranty fees in light of market conditions and to achieve return targets. As a result, the average charged guaranty fee on new acquisitions may fluctuate based on the credit quality and product mix of loans acquired, as well as market conditions and other factors.
We implemented an adverse market refinance fee effective December 1, 2020. The fee is intended to help us offset some of the higher projected expenses and risk due to COVID-19. For every $1 billion in eligible refinance loans we acquire, we will collect $5 million in adverse market refinance fees, which will be amortized into net interest income over the contractual life of the loans as a cost basis adjustment. See “Executive Summary—COVID-19 Impact” in our 2020 Form 10-K for additional information on the adverse market refinance fee.
The charts below display our average charged guaranty fees, net of TCCA fees, on our single-family conventional guaranty book of business and on new single-family conventional loan acquisitions, along with our average single-family conventional guaranty book of business and our single-family conventional loan acquisitions for the periods presented.
Select Single-Family Business Metrics
(Dollars in billions)
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| | Average charged guaranty fee on single-family conventional guaranty book of business, net of TCCA fees(1) | | | | Average single-family conventional guaranty book of business(2) |
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| | Average charged guaranty fee on new single-family conventional acquisitions, net of TCCA fees(1) | | | | Single-family conventional acquisitions |
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(1) Excludes the impact of a 10 basis point guaranty fee increase implemented pursuant to the TCCA, the incremental revenue from which is remitted to Treasury and not retained by us.
(2) Our single-family conventional guaranty book of business primarily consists of single-family conventional mortgage loans underlying Fannie Mae MBS outstanding. It also includes single-family conventional mortgage loans of Fannie Mae held in our retained mortgage portfolio, and other credit enhancements that we provide on single-family conventional mortgage assets. Our single-family conventional guaranty book of business does not include: (a) non-Fannie Mae single-family mortgage-related securities held in our retained mortgage portfolio for which we do not provide a guaranty; (b) mortgage loans guaranteed or insured, in whole or in part, by the U.S. government; or (c)(b) Freddie Mac-acquired mortgage loans underlying Freddie Mac-issued UMBS that we have resecuritized. Our average single-family conventional guaranty book of business is based on quarter-end balances.
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Fannie Mae First Quarter 2021 Form 10-Q | 25 |
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| MD&A | Single-Family Business | Single-Family Business Metrics |
Average charged guaranty fee on newly acquired conventional single-family loans is a metric management uses to measure the price we earn as compensation for the credit risk we manage and to assess our return. Average charged guaranty fee represents, on an annualized basis, the sumaverage of the base guaranty fees charged during the period for our new single-family conventional guaranty arrangements, which we will receive monthly over the life of the loan, plus the recognition of any upfront cash payments, including loan-level price adjustments, and the recently implemented adverse market refinance fee, based on an estimated average life at the time of acquisition. We use loan-level price adjustments, including various upfront risk-based fees, to price for the
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| Fannie Mae First Quarter 2022 Form 10-Q | 24 |
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| MD&A | Single-Family Business | Single-Family Business Metrics |
credit risk we assume in providing our guaranty. FHFA must approve changes to the national loan-level price adjustments we charge and can direct us to make other changes to our single-family guaranty fee pricing.
Our average charged guaranty fee on newly acquired conventional single-family loans, net of TCCA fee decreasedfees, increased in the first quarter of 20212022 compared with the first quarter of 2020. The decrease in average charged2021, reflecting the overall weaker credit risk profile of our first quarter 2022 acquisitions driven by a shift to a higher percentage of purchase loans than the prior year. We generally charge higher guaranty feefees on newloans with weaker credit risk characteristics. See “Single-Family Mortgage Credit Risk Management—Single-Family Portfolio Diversification and Monitoring” below for a description of key risk characteristics of our single-family acquisitions was primarily due to an increase in our estimated average life of loans acquired in the first quarter of 2021 compared with the2022 and first quarter of 2020. Due2021.
In January 2022, FHFA announced targeted increases to an increase in actualthe upfront fees we charge for certain high-balance loans and projected mortgage rates in the first quarter of 2021 and as a result of a large portion of our book of business beingsecond home loans. High-balance loans are mortgages originated in this historically low interest-rate environment, we expect slower prepaymentscertain designated areas above the baseline conforming loan limit. The new fees are effective for loans purchased on or after April 1, 2022, and for loans delivered into an MBS trust with an issue date on or after April 1, 2022. High-balance loans will continue to be eligible for our existing affordable loan products, HomeReady® and HFA PreferredTM, which offer caps on loan-level price adjustments for eligible borrowers. In addition, the high-balance upfront fees will not be charged on loans to first time homebuyers in high-cost areas with incomes at or below 100% of area median income. The new fees may decrease the future as fewer borrowers can benefit from refinancing as rates rise. Lower expected prepayments increases the estimated livesvolume of thehigh-balance and second home loans we acquire, thereby decreasing the rate at which we recognize upfront cash payments as income in our calculation of average charged guaranty fee. The impact of the change in estimated life was partially offset by the increase in guaranty fee from the implementation of the adverse market refinance fee in December 2020.acquire.
| Single-Family Business Financial Results(1) | Single-Family Business Financial Results(1) | Single-Family Business Financial Results(1) |
| | | For the Three Months Ended March 31, | | | | For the Three Months Ended March 31, | |
| | | 2021 | | 2020 | | Variance | | | 2022 | | 2021 | | Variance |
| | | (Dollars in millions) | | | (Dollars in millions) |
Net interest income(2) | Net interest income(2) | | | $ | 5,894 | | | $ | 4,541 | | | $ | 1,353 | | Net interest income(2) | | | $ | 6,255 | | | $ | 5,894 | | | $ | 361 | |
| Fee and other income | Fee and other income | | | 62 | | | 94 | | | (32) | | Fee and other income | | | 61 | | | 62 | | | (1) | |
| Net revenues | Net revenues | | | 5,956 | | | 4,635 | | | 1,321 | | Net revenues | | | 6,316 | | | 5,956 | | | 360 | |
| Investment gains (losses), net | Investment gains (losses), net | | | 64 | | | (152) | | | 216 | | Investment gains (losses), net | | | (66) | | | 64 | | | (130) | |
| Fair value gains (losses), net | | | 740 | | | (460) | | | 1,200 | | |
| Fair value gains, net | | Fair value gains, net | | | 527 | | | 740 | | | (213) | |
| Administrative expenses | Administrative expenses | | | (623) | | | (629) | | | 6 | | Administrative expenses | | | (683) | | | (623) | | | (60) | |
Credit-related income (expense)(3) | Credit-related income (expense)(3) | | | 679 | | | (2,250) | | | 2,929 | | Credit-related income (expense)(3) | | | (236) | | | 679 | | | (915) | |
TCCA fees(2) | TCCA fees(2) | | | (731) | | | (637) | | | (94) | | TCCA fees(2) | | | (824) | | | (731) | | | (93) | |
| Credit enhancement expense | Credit enhancement expense | | | (226) | | | (316) | | | 90 | | Credit enhancement expense | | | (210) | | | (226) | | | 16 | |
Change in expected credit enhancement recoveries(4) | Change in expected credit enhancement recoveries(4) | | | (16) | | | 58 | | | (74) | | Change in expected credit enhancement recoveries(4) | | | 69 | | | (16) | | | 85 | |
Other expenses, net(5) | Other expenses, net(5) | | | (287) | | | (163) | | | (124) | | Other expenses, net(5) | | | (198) | | | (287) | | | 89 | |
| Income before federal income taxes | Income before federal income taxes | | | 5,556 | | | 86 | | | 5,470 | | Income before federal income taxes | | | 4,695 | | | 5,556 | | | (861) | |
| Provision for federal income taxes | Provision for federal income taxes | | | (1,162) | | | (18) | | | (1,144) | | Provision for federal income taxes | | | (986) | | | (1,162) | | | 176 | |
| Net income | Net income | | | $ | 4,394 | | | $ | 68 | | | $ | 4,326 | | Net income | | | $ | 3,709 | | | $ | 4,394 | | | $ | (685) | |
(1)See “Note 9, Segment Reporting” for information about our segment allocation methodology.
(2)Reflects the impact of a 10 basis point guaranty fee increase implemented pursuant to the TCCA, the incremental revenue from which is remitted to Treasury. The resulting revenue is included in net“Net interest incomeincome” and the expense is recognized as “TCCA fees.”
(3)Consists of the benefit or provision for credit losses and foreclosed property income or expense.
(4)Consists of changeincrease (decrease) in benefits recognized from our single-family freestanding credit enhancements, which primarily relate to our CAS and CIRT programs.
(5)Consists primarily of debt extinguishment gains and losses, housing trust fund expenses, servicer fees paid in connection with certain loss mitigation activities, and loan subservicing costs.
Net Interest Income
Single-familyThe increase in single-family net interest income increased infor the first quarter of 20212022 compared with the first quarter of 2020,2021 was primarily driven by higher net amortization income and higher base guaranty fee income, partially offset by lower income from portfolios.net amortization income.
The drivers of net interest income for the Single-Family segment are consistent with the drivers of net interest income in our condensed consolidated statements of operations and comprehensive income, which we discuss in “Consolidated Results of Operations—Net Interest Income.”
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Fannie Mae First Quarter 20212022 Form 10-Q | 2625 |
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| MD&A | Single-Family Business | Single-Family Business Financial Results |
Fair Value Gains, (Losses), Net
Fair value gains, net in the first quarter of 20212022 were largely impacted by the implementation of our hedge accounting program resulting in a reclassification of fair value losses on designated interest-rate swaps to “net interest income.” Fair value gains, net were alsoprimarily driven by gains as a result of increases in the fair value of mortgage commitment derivatives, which werecommitments and gains in the fair value of long-term debt of consolidated trusts held at fair value, partially offset by fair value losses on trading securities.
FairConsistent with the drivers in the first quarter of 2022, fair value losses,gains, net in the first quarter of 20202021 were also primarily driven by decreasesincreases in the fair value of our mortgage commitments and risk management derivatives,gains in the fair value of long-term debt of consolidated trusts held at fair value, partially offset by fair value gainslosses on trading securities and CAS debt.securities.
The drivers of fair value gains, (losses), net for the Single-Family segment are consistent with the drivers of fair value gains, net in our condensed consolidated statements of operations and comprehensive income, which we discuss in “Consolidated Results of Operations—Fair Value Gains (Losses), Net.”
For information on the implementation of our hedge accounting program and its impact on our financial statements, see “Consolidated Results of Operations—Hedge Accounting Impact” in our 2021 Form 10-K and “Consolidated Results of Operations—Fair Value Gains (Losses), Net.”Net” in this report.
Credit-Related Income (Expense)
Credit-related expense for the first quarter of 2022 was primarily driven by a provision for higher actual and projected mortgage interest rates. This expense was partially offset by a benefit from the release of economic concessions on loans previously designated as TDRs that received loss mitigation arrangements during the quarter, pursuant to our adoption of accounting guidance ASU 2022-02.
Credit-related income for the first quarter of 2021 was driven by a benefit for credit losses due primarily to higher actual and forecasted home prices, partially offset by higher actual and projected interest rates.
Credit-related expense for the first quarter of 2020 was primarily driven by an increase in our allowance for loan losses due to losses we expected to incur as a result of the COVID-19 pandemic using an expected lifetime loss methodology consistent with our implementation of the CECL standard.
See “Consolidated Results of Operations—Credit-Related Income (Expense)” in this report for more information on the primary factors that contributed to our single-family credit-related income (expense).or expense. See “Note 1, Summary of Significant Accounting Policies” and “Note 3, Mortgage Loans” for additional information on our adoption of ASU 2022-02 on January 1, 2022 and the prospective discontinuation of TDR accounting.
Single-Family Mortgage Credit Risk Management
This section updates our discussion of single-family mortgage credit risk management in our 20202021 Form 10-K. For an overview of key elements of our mortgage credit risk management, see “Business—Managing Mortgage Credit Risk” in our 20202021 Form 10-K. For additional information on our acquisition and servicing policies, underwriting and servicing standards, quality control process, repurchase requests, and representation and warranty framework, see “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management” in our 20202021 Form 10-K.
Single-Family Acquisition and Servicing Policies and Underwriting and Servicing Standards
COVID-19 Selling Policies
We are working closely with Freddie Mac, under the guidance of FHFA, to offer temporary measures during the COVID-19 national emergency that provide lenders with the clarity and flexibility to continue lending in a prudent and responsible manner.
Temporary policy flexibilities and updates to our Selling Guide requirements have been designed to mitigate the operational impact of COVID-19 on loan underwriting and originations. These flexibilities have included:
•purchasing certain loans through February 28, 2021 that originated in 2020 and were subject to a COVID-19-related payment forbearance at the time of sale, subject to payment of a loan-level price adjustment;
•offering additional methods of obtaining verbal verifications of borrower employment for loans with application dates through April 30, 2021;
•allowing alternative property valuation methods; and
•expanding guidelines for the use of a power of attorney for loans with application dates through April 30, 2021.
Temporary policy updates to provide clarity and mitigate risk include:
•assessment of more recent documentation of borrower employment (including self-employment), income, and assets;
•requiring evidence of receipt of funds from stocks, stock options and mutual funds when used for down payment or closing costs, and reducing the value to 70% when considered for reserves;
•requiring additional due diligence regarding the payment status of a borrower’s existing mortgage loans;
•providing clarity for assessing self-employment income for qualifying purposes; and
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Fannie Mae First Quarter 20212022 Form 10-Q | 27 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
•requiring that loans be no more than six months old to be eligible for sale to us.
COVID-19 Servicing Policies
We also continue to work with Freddie Mac as instructed by FHFA to implement temporary policies in response to the COVID-19 pandemic to enable our single-family loan servicers to better assist borrowers impacted by COVID-19. We issued initial requirements to servicers on temporary policies to assist borrowers impacted by COVID-19 in March 2020, and have subsequently amended the requirements. We will continue monitoring the market to determine whether further adjustments to or extensions of our temporary policies are appropriate.
These temporary policies include:
•authorizing servicers to offer up to 12 months of forbearance, upon the request of any single-family borrower experiencing a financial hardship due to the COVID-19 pandemic, regardless of the borrower’s delinquency status; for loans already in a COVID-19-related forbearance as of February 28, 2021, servicers may grant an extension of forbearance for up to an additional six months, to a total of up to 18 months, provided that the forbearance does not result in the loan becoming greater than 18 months delinquent;
•beginning July 1, 2020, offering a payment deferral workout option to eligible borrowers who have resolved a COVID-19-related financial hardship but cannot afford to bring the loan current by reinstating the loan (that is, repaying all the missed payments at one time) or through a repayment plan (that is, repaying the missed payments over time). The payment deferral workout option allows the borrower to defer up to 18 months of past-due payments, without interest, to the end of the loan term (or when the loan is refinanced, the property is sold or the loan is otherwise paid off before the end of the loan term). All other terms of the loan remain unchanged;
•suspending foreclosures and certain foreclosure-related activities for single-family properties through at least June 30, 2021, other than for vacant or abandoned properties; and
•reporting as current to the credit bureaus the obligation of a borrower who receives a forbearance plan or other form of relief as a result of the COVID-19 pandemic during the CARES Act covered period if the borrower was current before the accommodation and makes payments as agreed under the accommodation in accordance with the Fair Credit Reporting Act, as amended by the CARES Act.
Certain states and localities have implemented COVID-19-related borrower and renter protections that are more extensive than our Servicing Guide requirements. States and localities may continue to consider such proposals in the future or extend the time period of existing protections. In addition, the CFPB issued a proposed rule prohibiting most new single-family foreclosures on mortgage loans secured by the borrower’s principal residence until after December 31, 2021, as we discuss in “Legislation and Regulation.” Our servicers must comply with all applicable laws.
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Fannie Mae First Quarter 2021 Form 10-Q | 2826 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
Single-Family Portfolio Diversification and Monitoring
The following table below displays our single-family conventional business volumes and our single-family conventional guaranty book of business, based on certain key risk characteristics that we use to evaluate the risk profile and credit quality of our single-family loans.
We provide additional information on the credit characteristics of our single-family loans in quarterly financial supplements, which we furnish to the Securities and Exchange Commission (the “SEC”) with current reports on Form 8-K and make available on our website. Information in our quarterly financial supplements is not incorporated by reference into this report.
| Key Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business(1) | Key Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business(1) | Key Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business(1) |
| | | Percent of Single-Family Conventional Business Volume at Acquisition(2) | | Percent of Single-Family Conventional Guaranty Book of Business(3) As of | | | Percent of Single-Family Conventional Business Volume at Acquisition(2) | | Percent of Single-Family Conventional Guaranty Book of Business(3) As of |
| | | For the Three Months Ended March 31, | | Percent of Single-Family Conventional Guaranty Book of Business(3) As of | | For the Three Months Ended March 31, | | Percent of Single-Family Conventional Guaranty Book of Business(3) As of |
| | | 2021 | | | March 31, 2021 | | | December 31, 2020 | | | | | March 31, 2022 | | | December 31, 2021 | |
Original loan-to-value (“LTV”) ratio:(4) | Original loan-to-value (“LTV”) ratio:(4) | | | | | | | | | | | | Original loan-to-value (“LTV”) ratio:(4) | | | | | | | | | | | |
| <= 60% | <= 60% | | | 34 | | % | 21 | | % | | 24 | | % | | 23 | | % | <= 60% | | | 28 | | % | 34 | | % | | 27 | | % | | 27 | | % |
| 60.01% to 70% | 60.01% to 70% | | | 17 | | | 15 | | | 15 | | | | 14 | | | 60.01% to 70% | | | 15 | | | 17 | | | 15 | | | | 15 | | |
| 70.01% to 80% | 70.01% to 80% | | | 30 | | | 36 | | | 35 | | | | 35 | | | 70.01% to 80% | | | 33 | | | 30 | | | 33 | | | | 33 | | |
| 80.01% to 90% | 80.01% to 90% | | | 9 | | | 13 | | | 11 | | | | 11 | | | 80.01% to 90% | | | 9 | | | 9 | | | 10 | | | | 10 | | |
| 90.01% to 95% | 90.01% to 95% | | | 8 | | | 12 | | | 10 | | | | 11 | | | 90.01% to 95% | | | 11 | | | 8 | | | 10 | | | | 10 | | |
| 95.01% to 100% | 95.01% to 100% | | | 2 | | | 3 | | | 4 | | | | 4 | | | 95.01% to 100% | | | 4 | | | 2 | | | 4 | | | | 4 | | |
| Greater than 100% | Greater than 100% | | | * | | * | | 1 | | | | 2 | | | Greater than 100% | | | — | | | * | | 1 | | | | 1 | | |
| Total | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % |
| Weighted average | Weighted average | | | 68 | | % | 74 | | % | | 73 | | % | | 74 | | % | Weighted average | | | 71 | | % | 68 | | % | | 72 | | % | | 72 | | % |
| Average loan amount | Average loan amount | | | $ | 282,561 | | | $ | 274,345 | | | $ | 188,447 | | | | $ | 185,047 | | | Average loan amount | | | $ | 299,395 | | | $ | 282,561 | | | $ | 202,076 | | | | $ | 198,865 | | |
| Loan count (in thousands) | | Loan count (in thousands) | | | 800 | | | 1,417 | | 17,654 | | | | 17,515 | | |
Estimated mark-to-market LTV ratio:(5) | Estimated mark-to-market LTV ratio:(5) | | | | | | Estimated mark-to-market LTV ratio:(5) | | | | | |
| <= 60% | <= 60% | | | | 53 | | % | | 52 | | % | <= 60% | | | | 63 | | % | | 61 | | % |
| 60.01% to 70% | 60.01% to 70% | | | | 18 | | | | 17 | | | 60.01% to 70% | | | | 18 | | | | 19 | | |
| 70.01% to 80% | 70.01% to 80% | | | | 18 | | | | 18 | | | 70.01% to 80% | | | | 12 | | | | 13 | | |
| 80.01% to 90% | 80.01% to 90% | | | | 8 | | | | 9 | | | 80.01% to 90% | | | | 5 | | | | 5 | | |
| 90.01% to 100% | 90.01% to 100% | | | | 3 | | | | 4 | | | 90.01% to 100% | | | | 2 | | | | 2 | | |
| Greater than 100% | Greater than 100% | | | | * | | | * | | Greater than 100% | | | | * | | | * | |
| Total | Total | | | | 100 | | % | | 100 | | % | Total | | | | 100 | | % | | 100 | | % |
| Weighted average | Weighted average | | | | 57 | | % | | 58 | | % | Weighted average | | | | 53 | | % | | 54 | | % |
| FICO credit score at origination: | FICO credit score at origination: | | | | | | | | | | | FICO credit score at origination: | | | | | |
| < 620 | < 620 | | | — | | % | * | % | | 1 | | % | | 1 | | % | < 620 | | | * | % | — | | % | | 1 | | % | | 1 | | % |
| 620 to < 660 | 620 to < 660 | | | 2 | | | 3 | | | | 4 | | | | 4 | | | 620 to < 660 | | | 4 | | | 2 | | | 4 | | | | 4 | | |
| 660 to < 680 | 660 to < 680 | | | 2 | | | 3 | | | | 4 | | | | 4 | | | 660 to < 680 | | | 5 | | | 2 | | | 3 | | | | 3 | | |
| 680 to < 700 | 680 to < 700 | | | 5 | | | 6 | | | | 7 | | | | 7 | | | 680 to < 700 | | | 8 | | | 5 | | | 7 | | | | 7 | | |
| 700 to < 740 | 700 to < 740 | | | 17 | | | 22 | | | | 19 | | | | 20 | | | 700 to < 740 | | | 21 | | | 17 | | | 19 | | | | 19 | | |
| >= 740 | >= 740 | | | 74 | | | 66 | | | | 65 | | | | 64 | | | >= 740 | | | 62 | | | 74 | | | 66 | | | | 66 | | |
| Total | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % |
| Weighted average | Weighted average | | | 761 | | | 753 | | | | 751 | | | 750 | | | Weighted average | | | 748 | | | 761 | | | 753 | | | | 753 | | |
Debt-to-income (“DTI”) ratio at origination:(6) | Debt-to-income (“DTI”) ratio at origination:(6) | | | | | | | | | | Debt-to-income (“DTI”) ratio at origination:(6) | | | | | |
| <= 43% | <= 43% | | | 80 | | % | 75 | | % | | 77 | | % | | 77 | | % | <= 43% | | | 71 | | % | 80 | | % | | 77 | | % | | 77 | | % |
| 43.01% to 45% | 43.01% to 45% | | | 8 | | | 9 | | | | 9 | | | | 9 | | | 43.01% to 45% | | | 10 | | | 8 | | | 8 | | | | 9 | | |
| Greater than 45% | Greater than 45% | | | 12 | | | 16 | | | | 14 | | | | 14 | | | Greater than 45% | | | 19 | | | 12 | | | 15 | | | | 14 | | |
| Total | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % |
| Weighted average | Weighted average | | | 33 | | % | 35 | | % | | 35 | | % | | 35 | | % | Weighted average | | | 36 | | % | 33 | | % | | 34 | | % | | 34 | | % |
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Fannie Mae First Quarter 20212022 Form 10-Q | 2927 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
| | | | Percent of Single-Family Conventional Business Volume at Acquisition(2) | | Percent of Single-Family Conventional Guaranty Book of Business(3) As of | | | Percent of Single-Family Conventional Business Volume at Acquisition(2) | | Percent of Single-Family Conventional Guaranty Book of Business(3) As of |
| | | For the Three Months Ended March 31, | | Percent of Single-Family Conventional Guaranty Book of Business(3) As of | | For the Three Months Ended March 31, | | Percent of Single-Family Conventional Guaranty Book of Business(3) As of |
| | | 2021 | | | March 31, 2021 | | | December 31, 2020 | | | | | March 31, 2022 | | | December 31, 2021 | |
| Product type: | Product type: | | | | | | | | | | | | Product type: | | | | | | | | | | | |
Fixed-rate:(7) | Fixed-rate:(7) | | | | | | Fixed-rate:(7) | | | | | |
| Long-term | Long-term | | | 84 | | % | 87 | | % | | 84 | | % | | 85 | | % | Long-term | | | 86 | | % | 84 | | % | | 84 | | % | | 84 | | % |
| Intermediate-term | Intermediate-term | | | 16 | | | 12 | | | 15 | | | | 14 | | | Intermediate-term | | | 13 | | | 16 | | | 15 | | | | 15 | | |
| Total fixed-rate | Total fixed-rate | | | 100 | | | 99 | | | 99 | | | | 99 | | | Total fixed-rate | | | 99 | | | 100 | | | 99 | | | | 99 | | |
| Adjustable-rate | Adjustable-rate | | | * | | 1 | | | 1 | | | | 1 | | | Adjustable-rate | | | 1 | | | * | | 1 | | | | 1 | | |
| Total | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % |
| Number of property units: | Number of property units: | | | | | | | | | | | | | Number of property units: | | | | | | | | | | | |
| 1 unit | 1 unit | | | 98 | | % | 98 | | % | | 97 | | % | | 97 | | % | 1 unit | | | 98 | | % | 98 | | % | | 97 | | % | | 97 | | % |
| 2-4 units | 2-4 units | | | 2 | | | 2 | | | 3 | | | | 3 | | | 2-4 units | | | 2 | | | 2 | | | 3 | | | | 3 | | |
| Total | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % |
| Property type: | Property type: | | | | | | | | | | | | Property type: | | | | | | | | | | | |
| Single-family homes | Single-family homes | | | 91 | | % | 91 | | % | | 91 | | % | | 91 | | % | Single-family homes | | | 91 | | % | 91 | | % | | 91 | | % | | 91 | | % |
| Condo/Co-op | Condo/Co-op | | | 9 | | | 9 | | | 9 | | | | 9 | | | Condo/Co-op | | | 9 | | | 9 | | | 9 | | | | 9 | | |
| Total | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % |
| Occupancy type: | Occupancy type: | | | | | | | | | | | | Occupancy type: | | | | | | | | | | | |
| Primary residence | Primary residence | | | 91 | | % | 92 | | % | | 90 | | % | | 90 | | % | Primary residence | | | 90 | | % | 91 | | % | | 90 | | % | | 90 | | % |
| Second/vacation home | Second/vacation home | | | 3 | | | 3 | | | 4 | | | | 4 | | | Second/vacation home | | | 4 | | | 3 | | | 4 | | | | 4 | | |
| Investor | Investor | | | 6 | | | 5 | | | 6 | | | | 6 | | | Investor | | | 6 | | | 6 | | | 6 | | | | 6 | | |
| Total | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % |
Loan purpose: | Loan purpose: | | | | | | | | | | | | Loan purpose: | | | | | | | | | | | |
| Purchase | Purchase | | | 25 | | % | 36 | | % | | 36 | | % | | 38 | | % | Purchase | | | 43 | | % | 25 | | % | | 36 | | % | | 36 | | % |
| Cash-out refinance | Cash-out refinance | | | 20 | | | 24 | | | 20 | | | | 20 | | | Cash-out refinance | | | 34 | | | 20 | | | 22 | | | | 21 | | |
| Other refinance | Other refinance | | | 55 | | | 40 | | | 44 | | | | 42 | | | Other refinance | | | 23 | | | 55 | | | 42 | | | | 43 | | |
| Total | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % |
Geographic concentration:(8) | Geographic concentration:(8) | | | | | | | | | | | | Geographic concentration:(8) | | | | | | | | | | | |
| Midwest | Midwest | | | 12 | | % | 13 | | % | | 14 | | % | | 14 | | % | Midwest | | | 12 | | % | 12 | | % | | 14 | | % | | 14 | | % |
| Northeast | Northeast | | | 14 | | | 12 | | | 17 | | | | 17 | | | Northeast | | | 13 | | | 14 | | | 16 | | | | 16 | | |
| Southeast | Southeast | | | 21 | | | 21 | | | 22 | | | | 22 | | | Southeast | | | 25 | | | 21 | | | 22 | | | | 23 | | |
| Southwest | Southwest | | | 18 | | | 21 | | | 18 | | | | 19 | | | Southwest | | | 21 | | | 18 | | | 19 | | | | 18 | | |
| West | West | | | 35 | | | 33 | | | 29 | | | | 28 | | | West | | | 29 | | | 35 | | | 29 | | | | 29 | | |
| Total | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % | Total | | | 100 | | % | 100 | | % | | 100 | | % | | 100 | | % |
| Origination year: | Origination year: | | | | | | | | | | | | Origination year: | | | | | | | | | | | |
| 2015 and prior | | | | 27 | | % | | 30 | | % | |
| 2016 | | | | 7 | | | | 8 | | | |
| 2016 and prior | | 2016 and prior | | | | 22 | | % | | 23 | | % |
| 2017 | 2017 | | | | 6 | | | | 7 | | | 2017 | | | | 3 | | | | 4 | | |
| 2018 | 2018 | | | | 4 | | | | 6 | | | 2018 | | | | 3 | | | | 3 | | |
| 2019 | 2019 | | | | 9 | | | | 11 | | | 2019 | | | | 5 | | | | 6 | | |
| 2020 | 2020 | | | | 38 | | | | 38 | | | 2020 | | | | 28 | | | | 30 | | |
| 2021 | 2021 | | | | 9 | | | | — | | | 2021 | | | | 35 | | | | 34 | | |
| 2022 | | 2022 | | | | 4 | | | | — | | |
| Total | Total | | | | 100 | | % | | 100 | | % | Total | | | | 100 | | % | | 100 | | % |
* Represents less than 0.5% of single-family conventional business volume or guaranty book of business.
| | | | | | | | |
Fannie Mae First Quarter 2021 Form 10-Q | 30 |
| | | | | | | | |
| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
(1)Second-lien mortgage loans held by third parties are not reflected in the original LTV or the estimated mark-to-market LTV ratios in this table.
(2)Calculated based on the unpaid principal balance of single-family loans for each category at time of acquisition.
(3)Calculated based on the aggregate unpaid principal balance of single-family loans for each category divided by the aggregate unpaid principal balance of loans in our single-family conventional guaranty book of business as of the end of each period.
(4)The original LTV ratio generally is based on the original unpaid principal balance of the loan divided by the appraised property value reported to us at the time of acquisition of the loan. Excludes loans for which this information is not readily available.
(5)The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each reported period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates periodic changes in home value. Excludes loans for which this information is not readily available.
| | | | | | | | |
| Fannie Mae First Quarter 2022 Form 10-Q | 28 |
| | | | | | | | |
| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
(6)Excludes loans for which this information is not readily available.
(7)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.
(8)Midwest consists of IL, IN, IA, MI, MN, NE, ND, OH, SD and WI. Northeast consists of CT, DE, ME, MA, NH, NJ, NY, PA, PR, RI, VT and VI. Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA and WV. Southwest consists of AZ, AR, CO, KS, LA, MO, NM, OK, TX and UT. West consists of AK, CA, GU, HI, ID, MT, NV, OR, WA and WY.
Characteristics of our New Single-Family Loan Acquisitions
TheRefinancing activity began to taper beginning in the second half of 2021, as a large portion of our single-family guaranty book of business had already recently refinanced and interest rates increased. Accordingly, the share of our single-family loan acquisitions consisting of refinance loans rather than(versus home purchase loans increasedloans) decreased to 57% in the first quarter of 20212022 compared with 75% in the first quarter of 2020, primarily due to a lower interest-rate environment, which encouraged refinance activity.2021. Typically, refinancehome purchase loans have lowerhigher LTV ratios than home purchaserefinance loans. This trend contributed to a decreasean increase in the percentage of our single-family loan acquisitions with LTV ratios over 90%80%, from 15%19% in the first quarter of 20202021 to 10%24% in the first quarter of 2021.2022. The historically low interest-rate environment, combineddecline in refinance share also contributed to a decline in the percentage of loans we acquired with a FICO credit score of 740 or greater, from 74% in the high levelfirst quarter of refinancing activity, also led2021 to 62% in the first quarter of 2022, as well as an increase in the percentage of loans we acquired with a FICO credit score over 740,less than 680, from 66%4% in the first quarter of 20202021 to 74%9% in the first quarter of 2021.2022.
Our share of acquisitions of loans with DTI ratios above 45% decreasedincreased to 19% in the first quarter of 20212022 compared with 12% in the first quarter of 2020.2021. This decreaseincrease was also driven by athe higher volumeshare of refinance loanhome purchase acquisitions, which tend to have lowerhigher DTI ratios than home purchase loans.refinance loan acquisitions.
For a discussion of factors that may impact the volume and credit characteristics of loans we acquire in the future, see “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Portfolio Diversification and Monitoring” in our 20202021 Form 10-K. In this section of our 20202021 Form 10-K, we also provide more information on the credit characteristics of loans in our single-family conventional guaranty book of business, including high-balance loans, reverse mortgages and mortgage products with rate resets.
In January 2021, the terms of our senior preferred stock purchase agreement were amended through a letter agreement FHFA entered into on our behalf with Treasury. The letter agreement includes restrictive covenants that impact our single-family business and is described in “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” in our 2020 Form 10-K. We are not currently in compliance with the new covenants that restrict our acquisitions of purchase money single-family loans with higher-risk characteristics and our acquisitions of single-family loans backed by investment properties and second homes. We are taking steps to ensure we comply with these covenants and continue to work with FHFA and our lender customers on our implementation efforts.
| | | | | | | | |
Fannie Mae First Quarter 2021 Form 10-Q | 31 |
| | | | | | | | |
| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk
Our charter generally requires credit enhancement on any single-family conventional mortgage loan that we purchase or securitize if it has an LTV ratio over 80% at the time of purchase. We generally achieve this through primary mortgage insurance. We also enter into various other types of transactions in which we transfer mortgage credit risk to third parties.
Our approved monoline mortgage insurers’ financial ability and willingness to pay claims is an important determinant of our overall credit risk exposure. For a discussion of our exposure to and management of the institutional counterparty credit risk associated with the providers of these credit enhancements, see “MD&A—Risk Management—Institutional Counterparty Credit Risk Management” and “Note 13, Concentrations of Credit Risk” in our 20202021 Form 10-K and “Risk Management—Institutional Counterparty Credit Risk Management” and “Note 10, Concentrations of Credit Risk” in this report. Also see “Risk Factors” in our 20202021 Form 10-K.
| | | | | | | | |
| Fannie Mae First Quarter 2022 Form 10-Q | 29 |
| | | | | | | | |
| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
The table below displays information about loans in our single-family conventional guaranty book of business covered by one or more forms of credit enhancement, including mortgage insurance or a credit risk transfer transaction. For a description of primary mortgage insurance and the other types of credit enhancements specified in the table, see “MD&A—Single-Family Loans withoutBusiness—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk” in our 2021 Form 10-K.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Single-Family Loans with Credit Enhancement |
| As of |
| | March 31, 2022 | | December 31, 2021 |
| | Unpaid Principal Balance | | Percentage of Single-Family Conventional Guaranty Book of Business | | Unpaid Principal Balance | | Percentage of Single-Family Conventional Guaranty Book of Business |
| (Dollars in billions) |
| Primary mortgage insurance and other | | $ | 712 | | | 20 | % | | $ | 697 | | | 20 | % |
| Connecticut Avenue Securities | | 615 | | | 17 | | | 512 | | | 14 | |
| Credit Insurance Risk Transfer | | 227 | | | 6 | | | 168 | | | 5 | |
| Lender risk-sharing | | 64 | | | 2 | | | 70 | | | 2 | |
| Less: Loans covered by multiple credit enhancements | | (295) | | | (8) | | | (253) | | | (7) | |
| Total single-family loans with credit enhancement | | $ | 1,323 | | | 37 | % | | $ | 1,194 | | | 34 | % |
Transfer of Mortgage Credit Risk
In addition to primary mortgage insurance, our Single-Family business has developed other risk-sharing capabilities to transfer portions of our single-family mortgage credit risk to the private market. Our credit risk transfer transactions have been designed to transfer a portion of the losses we expect would be incurred in an economic downturn or a stressed credit environment. Generally, benefits are received after the underlying property has been liquidated and all applicable proceeds, including private mortgage insurance benefits, have been applied to reduce the loss. As described in “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk—Credit Risk Transfer Transactions” in our 2021 Form 10-K, we have used primarily three single-family credit risk transfer programs: Connecticut Avenue Securities® (“CAS”), Credit Insurance Risk TransferTM (“CIRTTM”), and lender risk-sharing.
In the first quarter of 2022, we transferred a portion of the mortgage credit risk on single-family mortgage loans with an unpaid principal balance of $218.4 billion at the time of the transactions; substantially all of the loans in these credit risk transfer transactions were acquired in 2021. In the first quarter of 2022, we also exercised early termination options to cancel certain CIRT transactions.
We expect to engage in a higher volume of credit risk transfer transactions in 2022 compared to our 2021 issuances. The factors we expect will affect the extent to which we engage in single-family credit risk transfer transactions in the future and the structure of those transactions include our risk appetite, future market conditions, the cost of the transactions, FHFA guidance or requirements (including FHFA’s scorecard), the capital relief provided by the transactions, and our overall business and capital plans.
As described in “Legislation and Regulation—Final Rule Amending the Enterprise Regulatory Capital Framework,” in March 2022, FHFA published a final rule amending the enterprise regulatory capital framework. Among other changes, the amendment refined the risk-based capital treatment of credit risk transfer transactions. These changes to the enterprise regulatory capital framework increase the capital relief afforded by credit risk transfer transactions.
| | | | | | | | |
| Fannie Mae First Quarter 2022 Form 10-Q | 30 |
| | | | | | | | |
| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
The table below displays the aggregate mortgage credit risk transferred to third parties and retained by Fannie Mae pursuant to our single-family credit risk transfer transactions. The table does not include the credit risk transferred on single-family transactions that were cancelled or terminated as of March 31, 2022. The table below also excludes coverage obtained through primary mortgage insurance. The risk in force of these transactions, which refers to the maximum amount of losses that could be absorbed by credit risk transfer investors, was approximately $41 billion as of March 31, 2022, compared with approximately $39 billion as of March 31, 2021. Because of the large number of mortgage prepayments in recent periods, the first loss retention layer on each credit risk transfer transaction has increased as a percentage of the outstanding reference pool. As a result, to the extent that these deals were impacted by refinancing activity, the losses on the remaining covered reference pools must generally reach a higher percentage of the remaining outstanding balance before those credit risk transfer transactions will pay any benefits to us. In addition, home price appreciation since we entered into the transactions reduces the likelihood that we will incur losses on the covered loans large enough to receive a benefit from these transactions.
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|
| Outstanding as of March 31, 2022 |
| (Dollars in billions) |
| Senior | | Fannie Mae(1) $878 | | Outstanding Reference Pool(4)(6) $931
|
|
| | | | | | | | | |
| Mezzanine | | Fannie Mae(1) $3
| | CIRT(2)(3) $13
| | CAS(2) $13
| | Lender Risk-Sharing(2) $4
| |
| | | |
| | | | | | | | | |
| First Loss | | Fannie Mae(1) $9
| | CAS(2)(5) $9
| | Lender Risk-Sharing(2) $2
| |
| | |
(1)Credit risk retained by Fannie Mae in CAS, CIRT and lender risk-sharing transactions. Tranche sizes vary across programs.
(2)Credit risk transferred to third parties. Tranche sizes vary across programs.
(3)Includes mortgage pool insurance transactions covering loans with an unpaid principal balance of approximately $1.4 billion outstanding as of March 31, 2022.
(4)For CIRT and some lender risk-sharing transactions, “Reference Pool” reflects a pool of covered loans.
(5)For CAS transactions, “First Loss” represents all B tranche balances.
(6)For CAS and some lender risk-sharing transactions, represents outstanding reference pools, not the outstanding unpaid principal balance of the underlying loans. The outstanding unpaid principal balance for all loans covered by credit risk transfer programs, including all loans on which risk has been transferred in lender risk-sharing transactions, was approximately $906 billion as of March 31, 2022.
The following table displays information about the credit enhancement recovery receivables we have recognized within “Other assets” in our condensed consolidated balance sheets.
| | | | | | | | | | | | | | |
| Single-Family Credit Enhancement Receivables |
| | As Of |
| | March 31, 2022 | | December 31, 2021 |
| | (Dollars in millions) |
| Freestanding credit enhancement receivables | | $ | 167 | | | $ | 99 | |
| Primary mortgage insurance receivables, net of allowance | | 52 | | | 54 | |
| | | | | | | | |
| Fannie Mae First Quarter 2022 Form 10-Q | 31 |
| | | | | | | | |
| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
The following table displays the approximate cash paid or transferred to investors for credit risk transfer transactions outstanding. The cash represents the portion of the guaranty fee paid to investors as compensation for taking on a share of the credit risk.
| | | | | | | | | | | | | | |
| Credit Risk Transfer Transactions |
| | For the Three Months Ended March 31, |
| | 2022 | | 2021 |
| Cash paid or transferred for: | | (Dollars in millions) |
CAS transactions(1) | | $ | 184 | | | $ | 206 | |
| CIRT transactions | | 59 | | | 72 | |
| Lender risk-sharing transactions | | 42 | | | 74 | |
(1)Consists of cash paid for interest expense net of LIBOR or SOFR, as applicable, on outstanding CAS debt and amounts paid for both CAS REMIC® and CAS Credit-linked notes (“CLN”) transactions.
Cash paid or transferred to investors for CIRT transactions includes cancellation fees paid on certain CIRT transactions where we determined that the cost of these deals exceeded the expected remaining benefit. We expect expenses relating to cash paid or transferred to investors for credit risk transfer transactions will be higher in 2022 compared with 2021 as we expect to engage in a greater volume of credit risk transfer transactions in 2022.
The table below displays the primary characteristics of loans in our single-family conventional guaranty book of business currently without credit enhancement.enhancement as of the specified dates.
| Single-Family Loans without Credit Enhancement | | | As of | | As of |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | Unpaid Principal Balance | | Percentage of Single-Family Conventional Guaranty Book of Business | | Unpaid Principal Balance | | Percentage of Single-Family Conventional Guaranty Book of Business | | Unpaid Principal Balance | | Percentage of Single-Family Conventional Guaranty Book of Business | | Unpaid Principal Balance | | Percentage of Single-Family Conventional Guaranty Book of Business |
| | (Dollars in billions) | | (Dollars in billions) |
Low LTV ratio or short-term(1) | Low LTV ratio or short-term(1) | | $ | 1,014 | | | 31 | % | | $ | 938 | | | 29 | % | Low LTV ratio or short-term(1) | | $ | 1,198 | | | 34 | % | | $ | 1,167 | | | 34 | % |
Pre-credit risk transfer program inception(2) | Pre-credit risk transfer program inception(2) | | 424 | | | 13 | | | 462 | | | 14 | | Pre-credit risk transfer program inception(2) | | 305 | | | 9 | | | 324 | | | 9 | |
Recently acquired(3) | Recently acquired(3) | | 1,119 | | | 34 | | | 934 | | | 29 | | Recently acquired(3) | | 836 | | | 23 | | | 983 | | | 28 | |
Other(4) | Other(4) | | 302 | | | 9 | | | 286 | | | 9 | | Other(4) | | 569 | | | 16 | | | 565 | | | 16 | |
| Less: Loans in multiple categories | Less: Loans in multiple categories | | (829) | | | (25) | | | (751) | | | (23) | | Less: Loans in multiple categories | | (664) | | | (19) | | | (750) | | | (21) | |
| Total single-family loans currently without credit enhancement | | $ | 2,030 | | | 62 | % | | $ | 1,869 | | | 58 | % | |
| Total single-family loans without credit enhancement | | Total single-family loans without credit enhancement | | $ | 2,244 | | | 63 | % | | $ | 2,289 | | | 66 | % |
(1)Represents loans with an LTV ratio less than or equal to 60% or loans with an original maturity of 20 years or less.
(2)Represents loans that were acquired before the inception of our credit risk transfer programs. Also includes Refi PlusTM loans.
(3)Represents loans that were recently acquired and have not been included in a reference pool.
(4)Includes adjustable-rate mortgage loans, loans with a combined LTV ratio greater than 97%, non-Refi Plus loans acquired after the inception of our credit risk transfer programs that became 30 or more days delinquent prior to inclusion in a credit risk transfer transaction and loans that were delinquent as of March 31, 20212022 or December 31, 2020.
We have not entered into new credit risk transfer transactions since the first quarter of 2020 as we discuss below in “Transfer of Mortgage Credit Risk.” As a result, the percentage of loans in our single-family conventional guaranty book of business without credit enhancement has increased in recent periods. The percentage of our loans without credit enhancement was 62% and 58% as of March 31, 2021 and December 31, 2020, respectively.
| | | | | | | | |
Fannie Mae First Quarter 2021 Form 10-Q | 32 |
| | | | | | | | |
| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
Single-Family Loans with Credit Enhancement
The table below displays information about loans in our single-family conventional guaranty book of business covered by one or more forms of credit enhancement, including mortgage insurance or a credit risk transfer transaction. For a description of primary mortgage insurance and the other types of credit enhancements specified in the table, see “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk” in our 2020 Form 10-K.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Single-Family Loans with Credit Enhancement |
| As of |
| | March 31, 2021 | | December 31, 2020 |
| | Unpaid Principal Balance | | Percentage of Single-Family Conventional Guaranty Book of Business | | Unpaid Principal Balance | | Percentage of Single-Family Conventional Guaranty Book of Business |
| (Dollars in billions) |
| Primary mortgage insurance and other | | $ | 677 | | | 21 | % | | $ | 681 | | | 21 | % |
| Connecticut Avenue Securities | | 525 | | | 16 | | | 608 | | | 19 | |
| Credit Insurance Risk Transfer | | 189 | | | 6 | | | 216 | | | 7 | |
| Lender risk-sharing | | 108 | | | 3 | | | 131 | | | 4 | |
| Less: Loans covered by multiple credit enhancements | | (257) | | | (8) | | | (304) | | | (9) | |
| Total single-family loans with credit enhancement | | $ | 1,242 | | | 38 | % | | $ | 1,332 | | | 42 | % |
Transfer of Mortgage Credit Risk
In addition to primary mortgage insurance, our Single-Family business has developed other risk-sharing capabilities to transfer portions of our single-family mortgage credit risk to domestic and international investors and reinsurers in the private market. Our credit risk transfer transactions have been designed to transfer a portion of the losses we expect would be incurred in an economic downturn or a stressed credit environment. As described in “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk—Credit Risk Transfer Transactions” in our 2020 Form 10-K, we have used primarily three single-family credit risk transfer programs: Connecticut Avenue Securities® (“CAS”), Credit Insurance Risk TransferTM (“CIRT”), and lender risk-sharing. At FHFA’s direction, we have discontinued entering into new lender risk-sharing transactions as of the end of 2020. We continually evaluate our credit risk transfer transactions, which, in addition to managing our credit risk, also affect our returns on capital.
We have not entered into any new credit risk transfer transactions since the first quarter of 2020 as we continue to evaluate their costs and benefits, including a reduction in the capital relief these transactions provide under FHFA’s enterprise regulatory capital framework. As a result, the percentage of our book that is covered by these transactions has declined. The structure of and extent to which we engage in any additional credit risk transfer transactions in the future will be affected by the enterprise regulatory capital framework, our risk appetite, the strength of future market conditions, including the cost of these transactions, and the review of our overall business and capital plan. See “Risk Factors” in our 2020 Form 10-K for additional information on the risks associated with the constraints on new credit risk transfer transactions and “Business—Legislation and Regulation—GSE Act and Other Legislative and Regulatory Matters” in our 2020 Form 10-K for more information on FHFA’s enterprise regulatory capital framework.
| | | | | | | | |
Fannie Mae First Quarter 2021 Form 10-Q | 33 |
| | | | | | | | |
| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
The table below displays the mortgage credit risk transferred to third parties and retained by Fannie Mae pursuant to our single-family credit risk transfer transactions. The risk in force of these transactions, which refers to the maximum amount of losses that could be absorbed by credit risk transfer investors, was approximately $39 billion as of March 31, 2021.
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|
Outstanding as of March 31, 2021 |
(Dollars in billions) |
| Senior | | Fannie Mae(1)
$833
| | Outstanding Reference Pool(4)(6)
$882
|
|
| | | | | | | | | |
Mezzanine | | Fannie Mae(1)
$1
| | CIRT(2)(3)
$10
| | CAS(2)
$16
| | Lender Risk-Sharing(2)
$4
| |
| | | |
| | | | | | | | | |
First Loss | | Fannie Mae(1)
$9
| | CAS(2)(5)
$6
| | Lender Risk-Sharing(2)
$3
| |
| | |
(1)Credit risk retained by Fannie Mae in CAS, CIRT and lender risk-sharing transactions. Tranche sizes vary across programs.
(2)Credit risk transferred to third parties. Tranche sizes vary across programs.
(3)Includes mortgage pool insurance transactions covering loans with an unpaid principal balance of approximately $2.0 billion outstanding as of March 31, 2021.
(4)For CIRT and some lender risk-sharing transactions, “Reference Pool” reflects a pool of covered loans.
(5)For CAS transactions, “First Loss” represents all B tranche balances.
(6)For CAS and some lender risk-sharing transactions, represents outstanding reference pools, not the outstanding unpaid principal balance of the underlying loans. The outstanding unpaid principal balance for all loans covered by credit risk transfer programs, including all loans on which risk has been transferred in lender risk-sharing transactions, was $822.0 billion as of March 31, 2021.
The following table displays the approximate cash paid or transferred to investors for credit risk transfer transactions outstanding. The cash represents the portion of guaranty fee paid to investors as compensation for taking on a share of the credit risk.
| | | | | | | | | | | | | | |
| Credit Risk Transfer Transactions |
| | For the Three Months Ended March 31, |
| | 2021 | | 2020 |
| Cash paid or transferred for: | | (Dollars in millions) |
CAS transactions(1) | | $ | 206 | | | $ | 261 | |
| CIRT transactions | | 72 | | | 102 | |
| Lender risk-sharing transactions | | 74 | | | 81 | |
(1)Consists of cash paid for interest expense net of LIBOR on outstanding CAS debt and amounts paid for both CAS REMIC® and CAS Credit-linked notes (“CLN”) transactions.
| | | | | | | | |
Fannie Mae First Quarter 2021 Form 10-Q | 34 |
| | | | | | | | |
| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
Single-Family Problem Loan Management
Our problem loan management strategies focus primarily on reducing defaults to avoid losses that would otherwise occur and pursuing foreclosure alternatives to mitigate the severity of the losses we incur. See “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Problem Loan Management” in our 20202021 Form 10-K for a discussion of delinquency statistics on our problem loans, efforts undertaken to manage our problem loans, metrics regarding our loan workout activities, real estate owned (“REO”) management and other single-family credit-related information. The discussion below updates some of that information. We also provide ongoing credit performance information on loans underlying single-family Fannie Mae MBS and loans covered by single-family credit risk transfer transactions. For loans backing Fannie Mae MBS, see the “Forbearance and Delinquency Dashboard” available in the MBS section of our Data Dynamics® tool, which is available at www.fanniemae.com/datadynamics. For loans covered by credit risk transfer transactions, see the “Deal Performance Data” report available in the CAS and CIRT sections of the tool. Information on our website is not incorporated into this report. Information in Data Dynamics may differ from similar measures presented in our financial statements and other public disclosures for a variety of
| | | | | | | | |
| Fannie Mae First Quarter 2022 Form 10-Q | 32 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
reasons, including as a result of variations in the loan population covered, timing differences in reporting and other factors.
Single-Family Serious Delinquency Rates
The tables below display the delinquency status of loans and changes in the volume of seriously delinquent loans in our single-family conventional guaranty book of business based on the number of loans. Single-family seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process, expressed as a percentage of our single-family conventional guaranty book of business based on loan count. Management monitors the single-family serious delinquency rate as an indicator of potential future credit losses and loss mitigation activities. Serious delinquency rates are reflective of our performance in assessing and managing credit risk associated with single-family loans in our guaranty book of business. Typically, higher serious delinquency rates result in a higher allowance for loan losses.
For purposes of our disclosures regarding delinquency status, we report loans receiving COVID-19-related payment forbearance as delinquent according to the contractual terms of the loan. Pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act,Act”), for purposes of reporting to the credit bureaus, servicers must report a borrower receiving a COVID-19-related payment accommodation during the covered period, such as a forbearance plan or loan modification, as current if the borrower was current prior to receiving the accommodation and the borrower makes all required payments in accordance with the accommodation. | | | | | | | | | | | | | | | | | | | | |
| Delinquency Status and Activity of Single-Family Conventional Loans |
| | As of |
| | March 31, 2022 | | December 31, 2021 | | March 31, 2021 |
| Delinquency status: | | | | | | |
| 30 to 59 days delinquent | | 0.72 | % | | 0.86 | % | | 0.71 | % |
| 60 to 89 days delinquent | | 0.19 | | | 0.20 | | | 0.26 | |
| Seriously delinquent (“SDQ”): | | 1.01 | | | 1.25 | | | 2.58 | |
| Percentage of SDQ loans that have been delinquent for more than 180 days | | 71 | | | 75 | | | 74 | |
| Percentage of SDQ loans that have been delinquent for more than two years | | 12 | | | 9 | | | 4 | |
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| Delinquency Status and Activity of Single-Family Conventional Loans |
| As of |
| March 31, 2021 | | December 31, 2020 | | March 31, 2020 |
| Delinquency status: | | | | | |
| 30 to 59 days delinquent | 0.71 | % | | 1.02 | % | | 1.31 | % |
| 60 to 89 days delinquent | 0.26 | | | 0.36 | | | 0.32 | |
| Seriously delinquent (“SDQ”) | 2.58 | | | 2.87 | | | 0.66 | |
| Percentage of SDQ loans that have been delinquent for more than 180 days | 74 | | | 67 | | | 51 | |
| Percentage of SDQ loans that have been delinquent for more than two years | 4 | | | 3 | | | 11 | |
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Fannie Mae First Quarter 2021 Form 10-Q | 35 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
| | | For the Three Months Ended March 31, | | For the Three Months Ended March 31, |
| | 2021 | | 2020 | | 2022 | | 2021 |
| Single-family SDQ loans (number of loans): | Single-family SDQ loans (number of loans): | | | | | Single-family SDQ loans (number of loans): | | | | |
| Beginning balance | Beginning balance | | 495,806 | | | 112,434 | | Beginning balance | | 218,329 | | | 495,806 | |
| Additions | Additions | | 84,685 | | | 47,756 | | Additions | | 44,925 | | | 84,685 | |
| Removals: | Removals: | | Removals: | |
| Modifications and other loan workouts | Modifications and other loan workouts | | (80,967) | | | (9,714) | | Modifications and other loan workouts | | (57,370) | | | (80,967) | |
| Liquidations and sales | Liquidations and sales | | (16,179) | | | (9,634) | | Liquidations and sales | | (10,375) | | | (16,179) | |
| Cured or less than 90 days delinquent | Cured or less than 90 days delinquent | | (35,316) | | | (29,087) | | Cured or less than 90 days delinquent | | (16,638) | | | (35,316) | |
| Total removals | Total removals | | (132,462) | | | (48,435) | | Total removals | | (84,383) | | | (132,462) | |
| Ending balance | Ending balance | | 448,029 | | | 111,755 | | Ending balance | | 178,871 | | | 448,029 | |
Our single-family serious delinquency rate decreased as of March 31, 20212022 compared with December 31, 2020 due to the on-going economic recovery2021 and the decline in the number of our single-family loans in a COVID-19 forbearance plan. Our single-family serious delinquency rate increased as of March 31, 2021 compared with March 31, 2020 due to the economic dislocation causeddriven by the COVID-19 pandemic, which increased borrower participation insingle-family loans exiting forbearance plans.through a loan workout or by otherwise reinstating their loan. As of March 31, 2021,2022, single-family loans in forbearance comprised 75%30% of our single-family seriously delinquent loans. The percentage of seriously delinquent loans that have been delinquent for more than 180 days increased as of March 31, 2021 compared with March 31, 2020 primarily due to loans that continue to remain in a COVID-19-related forbearance and have become more delinquent.
Our single-family serious delinquency rate excluding loans in forbearance was 0.66% as of March 31, 2021 and December 31, 2020. We monitor the single-family serious delinquency rate excluding loans that received a forbearance to better understand the impact that forbearance activity has had on the rate and to monitor loans that are seriously delinquent not as a result of COVID-19. We expect the COVID-19 pandemic to result in a continued higher single-family serious delinquency rate over the next several quarters compared with pre-pandemic levels.
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Fannie Mae First Quarter 2021 Form 10-Q | 36 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
The table below displays the serious delinquency rates for, and the percentage of our seriously delinquent single-family conventional loans represented by, the specified loan categories. Percentage of book amounts presentrepresent the unpaid principal balance of loans for each category divided by the unpaid principal balance of our total single-family conventional guaranty book of business. The reported categories are not mutually exclusive.
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| Single-Family Conventional Seriously Delinquent Loan Concentration Analysis |
| As of |
| March 31, 2021 | December 31, 2020 | March 31, 2020 |
| | Percentage of Book Outstanding | | Percentage of Seriously Delinquent Loans(1) | | Serious Delinquency Rate | | Percentage of Book Outstanding | | Percentage of Seriously Delinquent Loans(1) | | Serious Delinquency Rate | | Percentage of Book Outstanding | | Percentage of Seriously Delinquent Loans(1) | | Serious Delinquency Rate |
| States: | | | | | | | | | | | | | | | | | | |
| California | | 19 | % | | 12 | % | | 2.31 | % | | 19 | % | | 12 | % | | 2.62 | % | | 19 | % | | 7 | % | | 0.33 | % |
| Florida | | 6 | | | 9 | | | 3.60 | | | 6 | | | 9 | | | 4.17 | | | 6 | | | 8 | | | 0.83 | |
| Illinois | | 3 | | | 5 | | | 3.02 | | | 3 | | | 5 | | | 3.10 | | | 4 | | | 6 | | | 0.91 | |
| New Jersey | | 4 | | | 5 | | | 4.04 | | | 3 | | | 5 | | | 4.57 | | | 3 | | | 5 | | | 1.13 | |
| New York | | 5 | | | 7 | | | 4.34 | | | 5 | | | 7 | | | 4.79 | | | 5 | | | 8 | | | 1.19 | |
| All other states | | 63 | | | 62 | | | 2.34 | | | 64 | | | 62 | | | 2.59 | | | 63 | | | 66 | | | 0.64 | |
| Product type: | | | | | | | | | | | | | | | | | | |
Alt-A(2) | | 1 | | | 5 | | | 8.85 | | | 1 | | | 5 | | | 9.32 | | | 1 | | | 9 | | | 2.95 | |
| Vintages: | | | | | | | | | | | | | | | | | | |
| 2004 and prior | | 2 | | | 9 | | | 5.66 | | | 2 | | | 9 | | | 5.88 | | | 2 | | | 20 | | | 2.48 | |
| 2005-2008 | | 2 | | | 15 | | | 9.65 | | | 2 | | | 15 | | | 9.98 | | | 3 | | | 32 | | | 4.11 | |
| 2009-2021 | | 96 | | | 76 | | | 2.13 | | | 96 | | | 76 | | | 2.39 | | | 95 | | | 48 | | | 0.35 | |
| Estimated mark-to-market LTV ratio: | | | | | | | | | | | | | | | | | | |
| <= 60% | | 53 | | | 59 | | | 2.36 | | | 52 | | | 56 | | | 2.52 | | | 53 | | | 52 | | | 0.53 | |
| 60.01% to 70% | | 18 | | | 18 | | | 3.27 | | | 17 | | | 18 | | | 3.73 | | | 17 | | | 17 | | | 0.80 | |
| 70.01% to 80% | | 18 | | | 13 | | | 2.67 | | | 18 | | | 14 | | | 3.05 | | | 17 | | | 14 | | | 0.74 | |
| 80.01% to 90% | | 8 | | | 8 | | | 3.23 | | | 9 | | | 9 | | | 4.17 | | | 8 | | | 9 | | | 0.96 | |
| 90.01% to 100% | | 3 | | | 1 | | | 1.49 | | | 4 | | | 2 | | | 1.85 | | | 5 | | | 4 | | | 0.85 | |
| Greater than 100% | | * | | 1 | | | 21.81 | | | * | | 1 | | | 22.43 | | | * | | 4 | | | 10.06 | |
Credit enhanced:(3) | | | | | | | | | | | | | | | | | | |
Primary MI & other(4) | | 21 | | | 27 | | | 4.06 | | | 21 | | | 27 | | | 4.36 | | | 22 | | | 26 | | | 0.95 | |
Credit risk transfer(5) | | 25 | | | 36 | | | 3.65 | | | 30 | | | 37 | | | 3.69 | | | 46 | | | 17 | | | 0.29 | |
| Non-credit enhanced | | 62 | | | 51 | | | 2.06 | | | 58 | | | 51 | | | 2.36 | | | 47 | | | 65 | | | 0.77 | |
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| Fannie Mae First Quarter 2022 Form 10-Q | 33 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
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| Single-Family Conventional Seriously Delinquent Loan Concentration Analysis |
| As of |
| March 31, 2022 | December 31, 2021 | March 31, 2021 |
| | Percentage of Book Outstanding | | Percentage of Seriously Delinquent Loans(1) | | Serious Delinquency Rate | | Percentage of Book Outstanding | | Percentage of Seriously Delinquent Loans(1) | | Serious Delinquency Rate | | Percentage of Book Outstanding | | Percentage of Seriously Delinquent Loans(1) | | Serious Delinquency Rate |
| States: | | | | | | | | | | | | | | | | | | |
| California | | 19 | % | | 10 | % | | 0.79 | % | | 19 | % | | 11 | % | | 1.01 | % | | 19 | % | | 12 | % | | 2.31 | % |
| Florida | | 6 | | | 8 | | | 1.21 | | | 6 | | | 8 | | | 1.59 | | | 6 | | | 9 | | | 3.60 | |
| Illinois | | 3 | | | 5 | | | 1.28 | | | 3 | | | 5 | | | 1.55 | | | 3 | | | 5 | | | 3.02 | |
| New Jersey | | 3 | | | 4 | | | 1.49 | | | 3 | | | 5 | | | 1.90 | | | 4 | | | 5 | | | 4.04 | |
| New York | | 5 | | | 8 | | | 1.87 | | | 5 | | | 7 | | | 2.24 | | | 5 | | | 7 | | | 4.34 | |
| All other states | | 64 | | | 65 | | | 0.95 | | | 64 | | | 64 | | | 1.16 | | | 63 | | | 62 | | | 2.34 | |
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| Vintages: | | | | | | | | | | | | | | | | | | |
| 2004 and prior | | 1 | | | 10 | | | 3.12 | | | 1 | | | 10 | | | 3.48 | | | 2 | | | 9 | | | 5.66 | |
| 2005-2008 | | 2 | | | 15 | | | 5.14 | | | 2 | | | 14 | | | 5.87 | | | 2 | | | 15 | | | 9.65 | |
| 2009-2022 | | 97 | | | 75 | | | 0.81 | | | 97 | | | 76 | | | 1.01 | | | 96 | | | 76 | | | 2.13 | |
| Estimated mark-to-market LTV ratio: | | | | | | | | | | | | | | | | | | |
| <= 60% | | 63 | | | 75 | | | 1.04 | | | 61 | | | 73 | | | 1.27 | | | 53 | | | 59 | | | 2.36 | |
| 60.01% to 70% | | 18 | | | 15 | | | 1.09 | | | 19 | | | 16 | | | 1.37 | | | 18 | | | 18 | | | 3.27 | |
| 70.01% to 80% | | 12 | | | 7 | | | 0.84 | | | 13 | | | 8 | | | 1.08 | | | 18 | | | 13 | | | 2.67 | |
| 80.01% to 90% | | 5 | | | 2 | | | 0.72 | | | 5 | | | 2 | | | 0.88 | | | 8 | | | 8 | | | 3.23 | |
| 90.01% to 100% | | 2 | | | 1 | | | 0.47 | | | 2 | | | 1 | | | 0.51 | | | 3 | | | 1 | | | 1.49 | |
| Greater than 100% | | * | | * | | 10.86 | | | * | | * | | 12.41 | | | * | | 1 | | | 21.81 | |
Credit enhanced:(2) | | | | | | | | | | | | | | | | | | |
Primary MI & other(3) | | 20 | | | 29 | | | 1.77 | | | 20 | | | 29 | | | 2.14 | | | 21 | | | 27 | | | 4.06 | |
Credit risk transfer(4) | | 25 | | | 30 | | | 1.23 | | | 21 | | | 32 | | | 1.80 | | | 25 | | | 36 | | | 3.65 | |
| Non-credit enhanced | | 63 | | | 54 | | | 0.83 | | | 66 | | | 53 | | | 0.98 | | | 62 | | | 51 | | | 2.06 | |
*Represents less than 0.5% of single-family conventional guaranty book of business.
(1)Calculated based on the number of single-family loans that were seriously delinquent for each category divided by the total number of single-family conventional loans that were seriously delinquent.
(2)For a description of our Alt-A loan classification criteria, see “MD&A—Glossary of Terms Used in This Report” in our 2020 Form 10-K.
(3)The credit-enhanced categories are not mutually exclusive. A loan with primary mortgage insurance that is also covered by a credit risk transfer transaction will be included in both the “Primary MI & other” category and the “Credit risk transfer” category. As a result, the “Credit enhanced” and “Non-credit enhanced” categories do not sum to 100%. The total percentage of our single-family conventional guaranty book of business with some form of credit enhancement as of March 31, 20212022 was 38%37%.
(4)(3)Refers to loans included in an agreement used to reduce credit risk by requiring primary mortgage insurance, collateral, letters of credit, corporate guarantees, or other agreements to provide an entity with some assurance that it will be compensated to some degree in the event of a financial loss. Excludes loans covered by credit risk transfer transactions unless such loans are also covered by primary mortgage insurance.
(5)(4)Refers to loans included in reference pools for credit risk transfer transactions, including loans in these transactions that are also covered by primary mortgage insurance. For CAS and some lender risk-sharing transactions, this represents the outstanding unpaid principal balance of the underlying loans on the single-family mortgage credit book, not the outstanding reference pool, as of the specified date. Loans included in our credit risk transfer transactions have all been acquired since 2009.
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Fannie Mae First Quarter 2021 Form 10-Q | 37 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
Single-Family Loans in Forbearance
As a part of our relief programs, we have authorized our servicers to permit payment forbearance to borrowers experiencing a COVID-19-related financial hardship for up to 12 months without regard to the delinquency status of the loan, and for borrowers already in forbearance as of February 28, 2021, for a total of up to 18 months, provided that the forbearance does not result in the loan becoming greater than 18 months delinquent. We estimate that, through March 31, 2021, approximately 8% of the single-family loans, based on loan count of our conventional guaranty book of business as of March 31, 2020, have been in a COVID-19-related forbearance at some point between then and March 31, 2021 (referred to as our “single-family cumulative forbearance take-up rate”). Based on our expectations regarding the economic recovery, which we discuss in “Key Market Economic Indicators,“ we believe that the substantial majority of borrowers who will ultimately request COVID-19-related relief have already done so.
As shownof March 31, 2022, the unpaid principal balance of single-family loans in the tables below, manyforbearance was $16.6 billion compared with $23.6 billion as of the loans that entered forbearance have since exited; therefore, theDecember 31, 2021. The percentage of loans in our single-family conventional guaranty book of business in forbearance has declined to 0.5% as of March 31, 2021 has declined to 2.5%. Some borrowers whose loans are in forbearance continue to make payments according to the original contractual terms2022 compared with 0.7% as of December 31, 2021. As of March 31, 2022, 67% of the loan notwithstanding the forbearance arrangement; we expect some of these borrowers will continue to do so and therefore remain current. The table below provides information on the delinquency and accrual status of our single-family loans in forbearance.forbearance were seriously delinquent compared with 66% as of December 31, 2021. We expect many of the loans in forbearance will resolve their delinquency through a payment deferral, loan modification, or other form of loan workout. As discussed below, servicers are required to contact borrowers prior to the end of forbearance to evaluate them for loan workout options that can support their successful transition out of forbearance.
We continue to accrue interest income on a majority of our single-family loans in forbearance because we have determined that collection of principal and interest on these loans is reasonably assured. For information on our nonaccrual policy for loans negatively impacted by the COVID-19 pandemic, see “Note 3, Mortgage Loans.”
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Fannie Mae First Quarter 20212022 Form 10-Q | 38 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
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| Delinquency and Accrual Status of Single-Family Loans in Forbearance | | |
| | March 31, 2021 | | |
| | Number of Loans | | Unpaid Principal Balance(1) | | | | Percentage of Loans in Forbearance(2) | | Percentage of Loans on Accrual Status(2) | | |
| | (Dollars in millions) | |
| Delinquency status: | | | | | | | | | | | | |
| Current | | 44,195 | | | $ | 8,128 | | | | | 10 | % | | 100 | % | | |
| 30 to 59 days delinquent | | 25,301 | | | 4,886 | | | | | 6 | | | 94 | | | |
| 60 to 89 days delinquent | | 24,529 | | | 4,802 | | | | | 6 | | | 85 | | | |
| Seriously delinquent: | | | | | | | | | | | | |
| 90 to 180 days delinquent | | 86,337 | | | 16,767 | | | | | 20 | | | 82 | | | |
| 180+ days delinquent | | 249,230 | | | 53,471 | | | | | 58 | | | 70 | | | |
| Total seriously delinquent | | 335,567 | | | 70,238 | | | | | 78 | | | 73 | | | |
Total loans in forbearance(3) | | 429,592 | | | $ | 88,054 | | | | | 100 | % | | 77 | | | |
| Percentage of single-family conventional guaranty book of business | | 2.5 | % | | 2.7 | % | | | | | | | | |
| | | | | | | | | | | | |
| | December 31, 2020 | | |
| | Number of Loans | | Unpaid Principal Balance(1) | | | | Percentage of Loans in Forbearance(2) | | Percentage of Loans on Accrual Status(2) | | |
| Delinquency status: | | (Dollars in millions) | | |
| Current | | 64,159 | | | $ | 12,110 | | | | | 12 | % | | 100 | % | | |
| 30 to 59 days delinquent | | 40,653 | | | 7,672 | | | | | 8 | | | 97 | | | |
| 60 to 89 days delinquent | | 35,107 | | | 6,658 | | | | | 7 | | | 85 | | | |
| Seriously delinquent: | | | | | | | | | | | | |
| 90 to 180 days delinquent | | 126,611 | | | 24,961 | | | | | 24 | | | 85 | | | |
| 180+ days delinquent | | 258,025 | | | 56,379 | | | | | 49 | | | 82 | | | |
| Total seriously delinquent | | 384,636 | | | 81,340 | | | | | 73 | | | 83 | | | |
Total loans in forbearance(3) | | 524,555 | | | $ | 107,780 | | | | | 100 | % | | 86 | | | |
| Percentage of single-family conventional guaranty book of business | | 3.0 | % | | 3.4 | % | | | | | | | | |
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(1)Does not reflect a valuation allowance recorded on the unpaid principal balance of loans in forbearance of $1.5 billion and $1.8 billion as of March 31, 2021 and December 31, 2020, respectively.
(2)Based on loan count.
(3)Amortized cost of these loans was $90.3 billion and $110.4 billion as of March 31, 2021 and December 31, 2020, respectively.
As of March 31, 2021, the vast majority of our single-family conventional loans in forbearance was due to borrowers experiencing a COVID-19-related financial hardship. As a result of the economic dislocation caused by the pandemic, we expect the number of single-family loans in forbearance to remain elevated through 2021 compared with pre-pandemic levels.
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Fannie Mae First Quarter 2021 Form 10-Q | 39 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
The table below provides information on the credit profile of our single-family loans in forbearance with select higher-risk characteristics. While the credit profile of our single-family loans in forbearance is weaker than the overall credit profile of our single-family conventional guaranty book of business, only 1% of our single-family loans in forbearance with a mark-to-market LTV ratio over 80% are not covered by mortgage insurance.
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| Select Higher-Risk Characteristics of Single-Family Loans in Forbearance | |
| | As of March 31, 2021 | | As of December 31, 2020 | |
| | Number of Loans | | Percentage of Unpaid Principal Balance in Forbearance | | Number of Loans | | Percentage of Unpaid Principal Balance in Forbearance | |
| | | |
Loans in forbearance with certain higher-risk characteristics:(1) | | | | | | | | | |
| Estimated mark-to-market LTV ratio > 80% | | 41,355 | | | 12 | % | | 62,144 | | 15 | % | |
| Estimated mark-to-market LTV ratio > 80% without mortgage insurance | | 4,946 | | | 1 | | | 6,811 | | 2 | | |
| DTI > 43% | | 166,350 | | | 41 | | | 201,354 | | 41 | | |
| FICO credit score at origination < 680 | | 134,474 | | | 27 | | | 159,017 | | 26 | | |
(1)The higher-risk categories are not mutually exclusive.
As a part of our loss mitigation efforts, servicers must attempt to contact the borrower no later than 30 days before the end of the forbearance period to evaluate them for a workout option after the forbearance period. Those options include:
•a reinstatement (where the borrower repays all of the missed payments at one time);
•a repayment plan (where the borrower repays the missed payments over time);
•a payment deferral (where the borrower defers the missed payments to the end of the loan term, or to when the loan is refinanced, the property is sold or the loan is otherwise paid off before the end of the loan term); or
•a modification of the loan terms so that the borrower may be brought current, which typically results in the borrower making reduced monthly contractual payments over a longer period of time.
Unlike a loan modification, repayment plans and payment deferrals do not require us to purchase the loan out of trust.
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Fannie Mae First Quarter 2021 Form 10-Q | 4034 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
The table below displays the status as of the current period-endMarch 31, 2022 of the single-family loans in our guaranty book of business that received a forbearance in 2020, 2021 or 2021.2022. The vast majority of these forbearance arrangements were offered to borrowers who experienced a COVID-19-related financial hardship. Many of these borrowers have successfully resolved their forbearance arrangement, primarily through payment deferral or reinstatement. WeIn addition, many of the loans that received a forbearance arrangement have subsequently liquidated, primarily as a result of refinancing, through the first quarter of 2022. By contrast, we expect thethat a higher percentage of loans that have yet to resolve their forbearance will receive a modification upon transitioning out of forbearance to increase throughout 2021. See “Loan Workout Metrics” for additional information about actions taken by us to help reinstate a loan to current status.modification.
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| Status of Single-Family Forbearance Loans |
| | As of March 31, 2021 | | |
| | Number of Loans | | Percentage of Loans with Forbearance by Category | | | | |
| | | | |
| Loans that received a forbearance, by status: | | | | | | | | |
| Active forbearance | | 429,592 | | | 32 | % | | | | |
Payment deferral(1) | | 274,704 | | | 20 | | | | | |
Modification(2) | | 20,985 | | | 2 | | | | | |
Reinstated(3) | | 337,332 | | | 25 | | | | | |
Other(4) | | 42,335 | | | 3 | | | | | |
| Total loans that received a forbearance in our single-family guaranty book of business | | 1,104,948 | | | 82 | | | | | |
| Loans that have received a forbearance, but paid off | | 244,561 | | | 18 | | | | | |
Total loans that have received a forbearance(5) | | 1,349,509 | | | 100 | % | | | | |
(1)As of March 31, 2021, 96%2022, 92% of single-family loans that received a forbearance and subsequently received a payment deferral were current.
(2)Includes loans that are in trial modifications. Ascurrent, and 89% of March 31, 2021, 89% ofsingle-family loans that received a forbearance and subsequently received a completed modification were current. See “Loan Workout Metrics” for additional information about actions we have taken to help reinstate loans to current status.
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| Status of Single-Family Forbearance Loans |
| | As of March 31, 2022 | | |
| | Number of Loans | | Percentage of Loans with Forbearance by Category | | | | |
| | | | |
Loans that received a forbearance, by status:(1) | | | | | | | | |
| Active forbearance | | 81,155 | | | 6 | % | | | | |
| Payment deferral | | 388,034 | | | 27 | | | | | |
Modification(2) | | 82,929 | | | 6 | | | | | |
Reinstated(3) | | 283,537 | | | 20 | | | | | |
Delinquent at time of exit or repayment plan(4) | | 49,572 | | | 3 | | | | | |
| Total loans that received a forbearance in our single-family guaranty book of business | | 885,227 | | | 62 | | | | | |
| Loans that have received a forbearance, but paid off | | 548,920 | | | 38 | | | | | |
Total loans that have received a forbearance(5) | | 1,434,147 | | | 100 | % | | | | |
(1)Loans are classified based on their status as of period end; therefore, loans may move from one category to another.
(2)Includes 27,536 loans that are in trial modifications.
(3)Represents loans that are no longer in forbearance but are current according to the original terms of the loan. Also includes loans that remained current throughout the forbearance arrangement and continue to perform.
(4)IncludesConsists of 48,642 loans that were delinquent upon the expiration of the forbearance arrangement as well asand 930 delinquent loans that exited forbearance through a repayment plan.
(5)Includes 5,415 loans that were in forbearance as of January 1, 2020.
The table below displays the status as of December 31, 2020 for single-family loans in our guaranty book of business that received a forbearance in 2020.
| | | | | | | | | | | | | | | | | | |
| Status of Single-Family Forbearance Loans |
| | | | As of December 31, 2020 |
| | | | | | Number of Loans | | Percentage of Loans with Forbearance by Category |
| | | | |
| Loans that received a forbearance, by status: | | | | | | | | |
| Active forbearance | | | | | | 524,555 | | | 40 | % |
Payment deferral(1) | | | | | | 220,414 | | | 17 | |
Modification(2) | | | | | | 13,277 | | | 1 | |
Reinstated(3) | | | | | | 337,086 | | | 26 | |
Other(4) | | | | | | 45,655 | | | 3 | |
| Total loans that received a forbearance in our single-family guaranty book of business | | | | | | 1,140,987 | | | 87 | |
| Loans that have received a forbearance, but paid off | | | | | | 167,388 | | | 13 | |
Total loans that have received a forbearance(5) | | | | | | 1,308,375 | | | 100 | % |
(1)As of December 31, 2020, 96% of loans that received a forbearance and subsequently received a payment deferral were current.
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Fannie Mae First Quarter 20212022 Form 10-Q | 4135 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
(2)IncludesThe table below displays the status as of December 31, 2021 for single-family loans in our guaranty book of business that arereceived a forbearance in trial modifications.2020 or 2021. As of December 31, 2020, 83%2021, 93% of loans that received a forbearance and subsequently received a payment deferral were current, and 86% of loans that received a forbearance and subsequently received a completed modification were current.
| | | | | | | | | | | | | | | | | | |
| Status of Single-Family Forbearance Loans |
| | | | As of December 31, 2021 |
| | | | | | Number of Loans | | Percentage of Loans with Forbearance by Category |
| | | | |
Loans that received a forbearance, by status:(1) | | | | | | | | |
| Active forbearance | | | | | | 117,440 | | | 8 | % |
| Payment deferral | | | | | | 380,070 | | | 27 | |
Modification(2) | | | | | | 65,383 | | | 5 | |
Reinstated(3) | | | | | | 291,039 | | | 21 | |
Delinquent at time of exit or repayment plan(4) | | | | | | 63,069 | | | 4 | |
| Total loans that received a forbearance in our single-family guaranty book of business | | | | | | 917,001 | | | 65 | |
| Loans that have received a forbearance, but paid off | | | | | | 497,288 | | | 35 | |
Total loans that have received a forbearance(5) | | | | | | 1,414,289 | | | 100 | % |
(1)Loans are classified based on their status as of period end; therefore, loans may move from one category to another.
(2)Includes 33,444 loans that are in trial modifications.
(3)Represents loans that are no longer in forbearance but are current according to the original terms of the loan. Also includes loans that remained current throughout the forbearance arrangement and continue to perform.
(4)IncludesConsists of 60,638 loans that were delinquent upon the expiration of the forbearance arrangement as well asand 2,431 delinquent loans that exited forbearance through a repayment plan.
(5)Includes 5,415 loans that were in forbearance as of January 1, 2020.
Accrued Interest Receivable, Net on Single-Family Loans in Forbearance
For loans negatively impacted by the COVID-19 pandemic, we continue to recognize interest income for up to six months of delinquency provided that the loan was either current at March 1, 2020 or originated after March 1, 2020 and collection of principal and interest is reasonably assured. For those loans where we have provided relief beyond six months of delinquency, we continue to accrue interest income provided that the loan remains in a forbearance arrangement and collection of principal and interest continues to be reasonably assured according to our nonaccrual policy. Our evaluation of whether the collection of principal and interest is reasonably assured considers the probability of default and the current value of the collateral. Once the forbearance period has ended, we will also consider the extent to which the borrower and the servicer have agreed to any of the loss mitigation options that are available. We then measure an allowance for expected credit losses on the unpaid accrued interest receivable balances such that the balance sheet reflects the net amount of interest we expect to collect. Accordingly, the application of our nonaccrual policy for loans negatively impacted by the COVID-19 pandemic has resulted in a large portion of delinquent loans, including those in forbearance, remaining on accrual status. See “Note 1, Summary of Significant Accounting Policies” in our 2020 Form 10-K and “Note 3, Mortgage Loans” in this report for additional information about our nonaccrual accounting policy. See also "Risk Factors—COVID-19 Pandemic Risk" in our 2020 Form 10-K for a discussion of credit risk and the COVID-19 pandemic.
Under our nonaccrual accounting policy for loans negatively impacted by the COVID-19 pandemic, our allowance for accrued interest receivable considers both the loan’s principal and accrued interest receivable balances as well as any proceeds that are expected from contractually attached mortgage insurance when assessing collectability. Our assessment of collectability requires significant management judgment; as a result, our allowance for accrued interest receivable is subject to the same review processes, as well as other established governance and controls, used for our allowance for loan losses. The table below displays an aging analysis of our accrued interest receivable, net of allowance on single-family loans that are in a forbearance plan.
| | | | | | | | | | | | | | | | | | | | |
| Aging of Accrued Interest Receivable, Net of Allowance on Single-Family Loans in Forbearance | | | | |
| | As of March 31, 2021 | | As of December 31, 2020 | | | | |
| | (Dollars in millions) | | | | |
| Aging analysis of accrued interest receivable: | | | | | | | | |
| Current | | $ | 22 | | | $ | 32 | | | | | |
| 30 to 59 days delinquent | | 28 | | | 46 | | | | | |
| 60 to 89 days delinquent | | 39 | | | 55 | | | | | |
| Seriously delinquent: | | | | | | | | |
| 90 to 180 days delinquent | | 239 | | | 377 | | | | | |
| 180+ days delinquent | | 1,518 | | | 1,427 | | | | | |
| Total accrued interest receivable | | 1,846 | | | 1,937 | | | | | |
| Allowance for accrued interest receivable | | (179) | | | (173) | | | | | |
| Total accrued interest receivable, net | | $ | 1,667 | | | $ | 1,764 | | | | | |
Principal and Interest Payments while Loans are in Forbearance
While a loan is in forbearance and remains in an MBS trust, investors in the MBS are entitled to continue to receive principal and interest payments on the MBS even though the borrower is not required to make principal and interest payments. For the majority of loans in our single-family guaranty book of business, our Single-Family Servicing Guide has, until recently, required servicers to advance missed scheduled principal and interest payments to the MBS trusts until the loans were purchased from the MBS trusts, including the portion of interest that represents guaranty fees owed to us. Because we typically do not purchase loans from MBS trusts while they are in forbearance, this servicer payment obligation could have continued for the entirety of the forbearance plan. Beginning August 2020, at FHFA’s instruction,
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Fannie Mae First Quarter 20212022 Form 10-Q | 4236 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
we reduced our single-family servicers’ obligations to advance these missed borrower payments and only require servicers to advance missed scheduled principal and interest payments on a loan for the first four months of missed borrower payments. After four months, we make the missed scheduled principal and interest payments to the MBS trust for payment to MBS holders so long as the loan remains in the MBS trust. For the quarter ended March 31, 2021, we advanced $622 million in missed borrower principal and interest payments to MBS trusts for payment to MBS holders. Since FHFA’s instruction in August of 2020 through March 31, 2021, we have advanced $1.8 billion in missed borrower principal and interest payments. See “Retained Mortgage Portfolio” for a description of when we purchase loans from single-family MBS trusts.
Loan Workout Metrics
As a part of our credit risk management efforts, loan workouts represent actions taken by uswe take to help reinstate a loanloans to current status and help homeowners stay in their home or to otherwise avoid foreclosure. Our loan workouts reflect various types of home retention solutions, including repayment plans, payment deferrals, and loan modifications. Our loan workouts also include foreclosure alternatives, such as short sales and deeds-in-lieu of foreclosure.
The chart below displays the unpaid principal balance of our completed single-family loan workouts by type, as well as the number of loan workouts, for the first quarter of 20202021 compared with the first quarter of 2021.2022. This table does not include loans in an active forbearance arrangement, or that exited a forbearance arrangement but were not seriously delinquent upon exit, trial modifications, loans to certain borrowers who have received bankruptcy relief that are classified as troubled debt restructurings, and repayment plans that have been initiated but not completed.
(1)There were approximately 16,70035,600 loans and 18,10016,700 loans in a trial modification period that was not yet complete as of March 31, 20212022 and 2020,2021, respectively.
(2)Includes repayment plans and foreclosure alternatives. Repayment plans reflect only those plans associated with loans that were 60 days or more delinquent. For the first quarter of 2021, the table excludes completed forbearance arrangements. For the first quarter of 2020, the table includes $17 million of completed forbearance arrangements that involve loans that were 90 days or more delinquent.
The increaseoverall decline in home retention solutionsloan workout activity was driven by fewer outstanding COVID-19-related forbearances in the first quarter of 20212022 compared with the first quarter of 2020 was driven by completed COVID-19-related2021. While payment deferrals, which havedeferral has been the primary loan workout solution for borrowers exiting forbearance to date, modifications have become an increasing proportion of our home retention solutions.
As we discussed in “Single-Family Loans in Forbearance”, we believe that the substantial majority of borrowers who will ultimately request COVID-19-related forbearance.relief have already done so. The total amount of principal and interest deferred to the end of the loan term for single-family loans that received a payment deferral was $783$427 million for the first quarter of 2021.
Given2022, of which $261 million was deferred interest. For the continuing impactfirst quarter of 2021, the pandemic, we expect higher loan workout activity to continue in 2021.total amount of principal and interest deferred was $783 million, of which $457 million was deferred interest.
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Fannie Mae First Quarter 20212022 Form 10-Q | 4337 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
Single-Family REO Management
If a loan defaults, we may acquire the property through foreclosure or a deed-in-lieu of foreclosure. The table below displays our REO activity by region. Regional REO acquisition trends generally follow a pattern that is similar to, but lags, that of regional delinquency trends.
| | Single-Family REO Properties | Single-Family REO Properties | Single-Family REO Properties |
| | | | For the Three Months Ended March 31, | | | For the Three Months Ended March 31, |
| | 2021 | | 2020 | | 2022 | | 2021 |
| Single-family REO properties (number of properties): | Single-family REO properties (number of properties): | | | | | Single-family REO properties (number of properties): | | | | |
Beginning of period inventory of single-family REO properties(1) | Beginning of period inventory of single-family REO properties(1) | | 7,973 | | | 17,501 | | | Beginning of period inventory of single-family REO properties(1) | | 7,166 | | | 7,973 | | |
Acquisitions by geographic area:(2) | Acquisitions by geographic area:(2) | | Acquisitions by geographic area:(2) | |
| Midwest | Midwest | | 250 | | | 944 | | | Midwest | | 392 | | | 250 | | |
| Northeast | Northeast | | 232 | | | 890 | | | Northeast | | 274 | | | 232 | | |
| Southeast | Southeast | | 292 | | | 1,148 | | | Southeast | | 263 | | | 292 | | |
| Southwest | Southwest | | 115 | | | 545 | | | Southwest | | 165 | | | 115 | | |
| West | West | | 51 | | | 248 | | | West | | 69 | | | 51 | | |
Total REO acquisitions(1) | Total REO acquisitions(1) | | 940 | | | 3,775 | | | Total REO acquisitions(1) | | 1,163 | | | 940 | | |
| Dispositions of REO | Dispositions of REO | | (1,995) | | | (4,987) | | | Dispositions of REO | | (899) | | | (1,995) | | |
End of period inventory of single-family REO properties(1) | End of period inventory of single-family REO properties(1) | | 6,918 | | | 16,289 | | | End of period inventory of single-family REO properties(1) | | 7,430 | | | 6,918 | | |
| Carrying value of single-family REO properties (dollars in millions) | Carrying value of single-family REO properties (dollars in millions) | | $ | 995 | | | $ | 2,129 | | | Carrying value of single-family REO properties (dollars in millions) | | $ | 1,090 | | | $ | 995 | | |
Single-family foreclosure rate(3) | Single-family foreclosure rate(3) | | 0.02 | | % | | 0.09 | | % | Single-family foreclosure rate(3) | | 0.03 | | % | | 0.02 | | % |
REO net sales price to unpaid principal balance(4) | REO net sales price to unpaid principal balance(4) | | 107 | | % | | 82 | | % | REO net sales price to unpaid principal balance(4) | | 116 | | % | | 107 | | % |
Short sales net sales price to unpaid principal balance(5) | Short sales net sales price to unpaid principal balance(5) | | 82 | | % | | 79 | | % | Short sales net sales price to unpaid principal balance(5) | | 86 | | % | | 82 | | % |
(1)Includes held-for-use properties, which are reported in our condensed consolidated balance sheets as a component of “Other assets.”
(2)See footnote 8 to the “Key Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business” table for states included in each geographic region.
(3)Estimated based on the annualized total number of properties acquired through foreclosure or deeds-in-lieu of foreclosure as a percentage of the total number of loans in our single-family conventional guaranty book of business as of the end of each period.
(4)Calculated as the amount of sale proceeds received on disposition of REO properties during the respective periods, excluding those subject to repurchase requests made to our sellers or servicers, divided by the aggregate unpaid principal balance of the related loans at the time of foreclosure. Net sales price represents the contract sales price less selling costs for the property and other charges paid by the seller at closing.
(5)Calculated as the amount of sale proceeds received on properties sold in short sale transactions during the respective periods divided by the aggregate unpaid principal balance of the related loans. Net sales price includes borrower relocation incentive payments and subordinate lien(s) negotiated payoffs.
The decline in single-family REO properties in the first quarter of 2021 compared with the first quarter of 2020 was due to the suspension of foreclosures that began in March 2020 as a result of the COVID-19 pandemic. In response to the pandemic and with instruction from FHFA, we have prohibited our servicers from completing foreclosures on our single-family loans through at least June 30,July 31, 2021, except in the case of vacant or abandoned properties. In addition, our servicers were required to comply with a Consumer Financial Protection Bureau (the “CFPB”) rule that prohibited certain new single-family foreclosures on mortgage loans secured by the borrower’s principal residence until after December 31, 2021. As a result, our foreclosure volumes were slightly higher in the first quarter of 2022 compared with the first quarter of 2021. We expect foreclosure volumes to gradually increase throughout 2022.
In April 2022, FHFA announced a suspension of foreclosure activities for up to 60 days for borrowers who apply for assistance under Treasury’s Homeowner Assistance Fund.
Other Single-Family Credit Information
Single-Family Credit Loss Metrics and Loan Sale Performance
The single-family credit loss metrics and loan sale performance measures below present information about gainslosses or lossesgains we realized on our single-family loans during the periods presented. The amount of these gainslosses or lossesgains in a given period is driven by foreclosures, pre-foreclosure sales, post-foreclosure REO activity, mortgage loan redesignations, and other events that trigger write-offs and recoveries. The single-family credit loss metrics we present are not defined terms and may not be calculated in the same manner as similarly titled measures reported by other companies. Management uses these measures to evaluate the effectiveness of our single-family credit risk management strategies in conjunction with leading indicators such as serious delinquency and forbearance rates, which are potential indicators of future realized single-family credit losses. We believe these measures provide useful information about our single-family credit performance and the factors that impact our credit performance.
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Fannie Mae First Quarter 20212022 Form 10-Q | 4438 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
are potential indicators of future realized single-family credit losses. We believe these measures provide useful information about our single-family credit performance and the factors that impact it.
The table below displays the components of our single-family credit loss metrics and loan sale performance.
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| Single-Family Credit Gains (Loss) Metrics and Loan Sale Performance |
| | | For the Three Months Ended March 31, |
| | | | | | 2021 | | 2020 |
| | | | | | | | | | Amount | | Ratio(1) | | Amount | | Ratio(1) |
| | | | | | | | | | | | | (Dollars in millions) |
| Write-offs | | | | | | | | | | | | | $ | (19) | | | | | | $ | (65) | | | | | |
| Recoveries | | | | | | | | | | | | | 5 | | | | | | 14 | | | | | |
| Foreclosed property income (expense) | | | | | | | | | | | | | 17 | | | | | | (78) | | | | | |
| Credit gains (losses) and related ratios | | | | | | | | | | | | | 3 | | | * | bps | | (129) | | | | 1.7 | bps |
Write-offs on the redesignation of mortgage loans from HFI to HFS(2) | | | | | | | | | | | | | (54) | | | | | | (9) | | | | | |
Gains (losses) on sales and other valuation adjustments(3) | | | | | | | | | | | | | 31 | | | | | | (167) | | | | | |
| Net credit gains (losses), write-offs on redesignations, and gains (losses) on sales and other valuation adjustments, and related ratios | | | | | | | | | | | | | $ | (20) | | | 0.2 | | bps | | $ | (305) | | | | 4.1 | bps |
| | | | | | | | | | | | | | | | | | | | | |
| Single-Family Credit Loss Metrics and Loan Sale Performance |
| | | | For the Three Months Ended March 31, | |
| | | | | | 2022 | | 2021 | |
| | | | | (Dollars in millions) | |
| Write-offs | | | | | | $ | (16) | | | $ | (19) | | |
| Recoveries | | | | | | 36 | | | 5 | | |
| Foreclosed property income | | | | | | 34 | | | 17 | | |
| Credit gains | | | | | | 54 | | | 3 | | |
Write-offs on the redesignation of mortgage loans from HFI to HFS(1) | | | | | | (13) | | | (54) | | |
| Net credit gains and write-offs on the redesignations | | | | | | 41 | | | (51) | | |
Gains (losses) on sales and other valuation adjustments(2) | | | | | | (67) | | | 31 | | |
| Net credit gains, write-offs on the redesignations and gains (losses) on sales and other valuation adjustments | | | | | | $ | (26) | | | $ | (20) | | |
| | | | | | | | | |
Credit gain ratio (in bps)(3) | | | | | | 0.6 | | | * | |
Net credit gains, write-offs on the redesignations and gains (losses) on sales and other valuation adjustments ratio (in bps)(3) | | | | | | (0.3) | | | (0.2) | | |
* Represents credit gainsgain ratio of less than 0.05 basis points.
(1)Basis points are calculated based on the amount of each line item annualized divided by the average single-family conventional guaranty book of business during the period.
(2)Consists of the lower of cost or fair value adjustment at time of redesignation.
(3)(2)Consists of gains or losses realized on the sales of nonperforming and reperforming mortgage loans during the period and temporary lower-of-cost-or-market adjustments on HFS loans, which are recognized in “Investment gains (losses), net” in our condensed consolidated statements of operations and comprehensive income.
(3)Calculated based on the annualized amount of “Credit gains” and “Net credit gains, write-offs on redesignations and gains (losses) on sales and other valuation adjustments” divided by the average single-family conventional guaranty book of business during the period.
We had modesthigher single-family credit gains in the first quarter of 2021 compared with single-family credit losses in the first quarter of 2020. Single-family credit gains in the first quarter of 2021 were primarily due to sales of existing foreclosed properties partially offset by reduced foreclosures driven by the COVID-19-related foreclosure moratorium.
Our single-family write-offs on redesignation increased in the first quarter of 20212022 compared with the first quarter of 20202021, primarily due to an increasehigher foreclosed property income as well as higher loss recoveries.
Our single-family write-offs on redesignations decreased in the first quarter of 2022 compared with the first quarter of 2021 primarily due to a decrease in the volume of nonperforming and reperforming loans redesignated from HFI to HFS in the first quarter of 2021.2022.
We had losses on other valuation adjustments in the first quarter of 2022 primarily due to losses on lower-of-cost-or-market adjustments driven by price declines on our HFS loans as rates rose. By contrast, we had gains on sales and other valuation adjustments in the first quarter of 2021 primarily due to gains on lower-of-cost-or-market adjustments driven by price increases on our HFS loans compared with lower-of-cost-or-market losses in the first quarter of 2020 driven by price declines on our HFS loans as a result of the market recovery following the onset of the COVID-19 pandemic.pandemic in 2020.
We do not expect a substantialgradual increase in our single-family credit losseswrite-offs in the near term2022 as a result of COVID-19, as we are currently offering up to 18 months of forbearance to eligible single-family borrowers suffering financial hardship relatingan increase in foreclosure activity, due in part to the pandemic and because we have suspendedexpiration of the CFPB rule that prohibited certain new single-family foreclosures and certain foreclosure-related activities for single-family properties through at least June 30,on mortgage loans secured by the borrower’s principal residence until after December 31, 2021. Over the longer term, we expect the COVID-19 pandemic will result in higher realized single-family credit losses as loans default. See “Risk Factors” in our 20202021 Form 10-K for additional information on the potential credit risk impact of the COVID-19 pandemic and "Legislation and Regulation" in this report for information on the CFPB's proposal to generally prohibit servicers from initiating any new foreclosure on a mortgage loan secured by the borrower’s principal residence until after December 31, 2021.pandemic.
For information on our credit-related income or expense, which includes changes in our allowance, see “Consolidated Results of Operations—Credit-Related Income (Expense)” and “Single-Family Business Financial Results.”
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Fannie Mae First Quarter 20212022 Form 10-Q | 4539 |
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| MD&A | Single-FamilyMultifamily Business | Single-Family Mortgage Credit Risk Management |
Single-Family Loss Reserves
Our single-family loss reserves, which include our allowance for loan losses and the related accrued interest receivable, and our reserve for guaranty losses, provide for an estimate of credit losses in our single-family guaranty book of business.
The table below summarizes the changes in our single-family loss reserves, excluding credit losses on our AFS securities. For a discussion of changes in our single-family benefit or provision for credit losses see “Consolidated Results of Operations—Credit-Related Income (Expense).”
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| Single-Family Loss Reserves | |
| | | | For the Three Months Ended March 31, | |
| | | | | | 2021 | | 2020 | |
| | | | | (Dollars in millions) | |
| Changes in loss reserves: | | | | | | | | | |
| Beginning balance | | | | | | $ | (9,573) | | | $ | (8,779) | | |
| Transition impact of the adoption of the CECL standard | | | | | | — | | | (1,231) | | |
| Benefit (provision) for credit losses | | | | | | 662 | | | (2,170) | | |
| Write-offs | | | | | | 73 | | | 74 | | |
| Recoveries | | | | | | (5) | | | (14) | | |
| Other | | | | | | 57 | | | 28 | | |
| Ending balance | | | | | | $ | (8,786) | | | $ | (12,092) | | |
| | | | | | | | | |
| Write-offs, net of recoveries annualized, as a percentage of the average single-family conventional guaranty book of business (in bps) | | | | | | 0.8 | | | 0.8 | |
| | | | | | | | | |
| | | | | | As of | |
| | | | | | March 31, 2021 | | December 31, 2020 | |
| Loss reserves as a percentage of single-family: | | | | | | | | | |
| Conventional guaranty book of business | | | | | | 0.27 | % | | 0.30 | % | |
| Nonaccrual loans at amortized cost | | | | | | 24.75 | | | 34.63 | | |
Troubled Debt Restructurings and Nonaccrual Loans
We continue to account for eligible COVID-19-related loss mitigation activities as permitted under the CARES Act and the Consolidated Appropriations Act of 2021, which provide relief from TDR accounting and disclosure requirements for our forbearance plans and loan modifications. See “Note 1, Summary of Significant Accounting Policies” in our 2020 Form 10-K for more information on the relief from TDR accounting and disclosure requirements.
The table below displays the single-family loans classified as TDRs that were on accrual status and single-family loans on nonaccrual status. The table includes our amortized cost in HFI and HFS single-family mortgage loans, as well as interest income forgone and recognized for on-balance sheet TDRs on accrual status and nonaccrual loans. For more information on TDRs and nonaccrual loans, see “Note 3, Mortgage Loans.”
| | | | | | | | | | | | | | | | | | | | | | | |
| Single-Family TDRs on Accrual Status and Nonaccrual Loans | |
| As of |
| March 31, 2021 | | December 31, 2020 |
| (Dollars in millions) |
| TDRs on accrual status | | $ | 66,561 | | | | | $ | 69,503 | | |
| Nonaccrual loans | | 35,498 | | | | | 27,643 | | |
| Total TDRs on accrual status and nonaccrual loans | | $ | 102,059 | | | | | $ | 97,146 | | |
Accruing on-balance sheet loans past due 90 days or more(1) | | $ | 58,426 | | | | | $ | 77,181 | | |
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Fannie Mae First Quarter 2021 Form 10-Q | 46 |
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| MD&A | Single-Family Business | Single-Family Mortgage Credit Risk Management |
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | |
| | |
| | 2021 | | | | 2020 | |
| | (Dollars in millions) | |
| Interest related to on-balance sheet TDRs on accrual status and nonaccrual loans: | | | | | | | |
Interest income forgone(2) | | $ | 480 | | | | | $ | 406 | | |
Interest income recognized(3) | | 815 | | | | | 1,068 | | |
(1)Includes loans that, as of the end of each period, are 90 days or more past due and continuing to accrue interest. As of March 31, 2021 and December 31, 2020, the substantial majority of these loans had a COVID-19-related forbearance.
(2)Represents the amount of interest income we did not recognize, but would have recognized during the period, for nonaccrual loans and TDRs on accrual status held as of the end of each period had the loans performed according to their original contractual terms.
(3)Primarily includes amounts accrued while the loans were performing, including the amortization of any deferred cost basis adjustments, and cash payments received on nonaccrual loans held as of the end of each period.
As of March 31, 2021, there was an increase in loans on nonaccrual status and a corresponding decrease in loans accruing on-balance sheet that were past due 90 days or more compared with December 31, 2020. This was primarily attributed to loans that continue to remain in a COVID-19-related forbearance and have become more delinquent. As a result, a greater portion of these loans have entered nonaccrual status, as collection of principal and interest is no longer reasonably assured.
Under our nonaccrual policy for loans negatively impacted by the COVID-19 pandemic, we continue to recognize interest income for up to six months of delinquency provided that the loan was either current at March 1, 2020 or originated after March 1, 2020 and collection of principal and interest is reasonably assured. For those loans where we have provided relief beyond six months of delinquency, we continue to accrue interest income provided that the loan remains in a forbearance arrangement and collection of principal and interest continues to be reasonably assured according to our nonaccrual policy. This has resulted in a large portion of loans in forbearance remaining on accrual status. For additional information on our accounting policy for nonaccrual loans, see “Note 3, Mortgage Loans.”
We have established a valuation allowance of $219 million as of March 31, 2021 on the total single-family accrued interest receivable balance based on our assessment of collectability. For single-family loans negatively impacted by the pandemic that are six or more months delinquent as of March 31, 2021, we have recorded a total accrued interest receivable balance of $1.8 billion, for which we have established a valuation allowance of $185 million.
Multifamily Business
Our Multifamily business provides mortgage market liquidity primarily for properties with five or more residential units, which may be apartment communities, cooperative properties, seniors housing, dedicated student housing or manufactured housing communities.
This section supplements and updates information regarding our Multifamily business segment in our 20202021 Form 10-K. See “MD&A—Multifamily Business” in our 20202021 Form 10-K for additional information regarding the primary business activities, customers,lenders, competition and market share of our Multifamily business.
Multifamily Mortgage Market
Multifamily market fundamentals, which include factors such as vacancy rates and rents, improvedremained positive during the first quarter of 2021,2022, due to pent up demand for multifamily housing stemming from a rebounding economy, including increasing job growth, higher wages and continued demand for multifamily housing.an elevated level of household savings.
•Vacancy rates. Based on preliminary third-party data, we estimate that the estimated national multifamily vacancy rate for institutional investment-type apartment properties was 4.8% as of March 31, 2021 remained unchanged at 6.0%, the same2022, compared with 5.0% as of December 31, 2020, but higher than the estimated 5.8%2021, and 6.0% as of March 31, 2020.2021. The estimated national multifamily vacancy rate remains in line withbelow its estimated average rate of about 6.0%6% over the last ten10 years. We believe that elevated levels of new supply delivered during the quarter, especially in higher cost metros and submarkets, kept the estimated national vacancy level from declining by increasing the number of units available despite the improvement in market fundamentals.
•Rents. EffectiveBased on preliminary third-party data, we estimate that effective rents are estimated to have reversed recent trends and increased by 0.5%2.0% during the first quarter of 20212022 compared with a decreasean increase of 0.5%3.0% during the fourth quarter of 20202021 and an increase of 0.5% during the first quarter of 2020.2021. We expect annualized rent growth for 2022 will be between 4.0% and 5.0%.
Vacancy rates and rents are important to loan performance because multifamily loans are generally repaid from the cash flows generated by the underlying property. Several years of improvement in these fundamentals helped to
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Fannie Mae First Quarter 2021 Form 10-Q | 47 |
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increase property values in most metropolitan areas. Based on currentpreliminary multifamily property sales data, transaction volumes in the first quarter of 2021 trended lower than in previous years yetfor early 2022 remained elevated with capitalization rates remained low. Weholding steady; however, annual sales volume is not expected to reach the level achieved in 2021. Nevertheless, we believe this is due to property owners choosing to retain their multifamily properties, especially as demand trends are improving, as well as commercial real estate investors remainingwill remain interested in the multifamily rathersector this year, despite rising interest rates, due to continued strong fundamentals.
We estimate more than other sectors that386,000 multifamily units were hit hard by the pandemic, such as hospitality and retail, thus keeping overall property values relatively stable.
delivered in 2021. Multifamily construction underway remains elevated, with more than 500,000elevated. We estimate that approximately 450,000 multifamily units expected towill be delivered in 2021, compared with the estimated 396,000 new multifamily units that were completed in 2020. We believe this additional supply is one reason for elevated concession rates.2022.
While significant uncertainty remains, we currentlyWe expect the multifamily sector to benefitcontinue benefiting from an improving economycurrent economic conditions and subsequentcontinued job growth, with rent growth moderating but remaining above normalized levels over the coming months, leading to positive rent growth and a slightly lower vacancy rate by year end.remainder of the year.
Multifamily Business Metrics
Through the secondary mortgage market, we support rental housing for the workforce population, for senior citizens and students, and for families with the greatest economic need. Over 90%Almost 95% of the multifamily units we financed that were potentially eligible for housing goals credit in the first quarter of 20212022 were affordable to families earning at or below 120% of the median income in their area, providing support for both workforce housing and affordable housing.
Multifamily New Business Volume
(Dollars in billions)
(1)Reflects unpaid principal balance of multifamily Fannie Mae MBS issued, multifamily loans purchased, and credit enhancements provided on multifamily mortgage assets during the period.
FHFA established a 2021 multifamily volume cap of $70 billion in(2)Reflects new business volume overunits financed by first liens; excludes second liens on units for which we had financed the four-quarter period from January 1, 2021 through December 31, 2021. FHFA also announced the requirement that at least 50% of our 2021 multifamily business volume must be mission-driven, focused on certain affordable and underserved market segments, which consists of loans on properties affordable for residents who earn 80% of area median income or below, with special provisions for rural housing and forfirst lien, as well as manufactured housing communities. Furthermore, FHFA’s 2021 multifamily volume cap requires that a minimum of 20% of our multifamily business volumerentals. Units financed reported for prior periods have been updated in 2021 must be affordablethis report to residents at 60% of area median income or below. Multifamily business that meets the minimum 20% requirement also counts as meeting the minimum 50% requirement.
The January 2021 amendment to the senior preferred stock purchase agreement contains certain restrictions on Fannie Mae’s business activities, including our multifamily business volume. We may not acquire more than $80 billionexclude previously included second liens and manufactured housing rentals. Second liens and manufactured housing rentals are included in multifamily mortgage assets in any 52-week period. FHFA will adjust the dollar amount of this limitation up or down at the end of each calendar year based on changes in the consumer price index. Additionally, at least 50% of our multifamily acquisitions in any calendar year must, at the time of acquisition, be classified as mission-driven, consistent with FHFA guidelines. We understand that the $70 billion multifamily volume cap and related requirements established by FHFA in the fourth quarter of 2020 remain in effect for calendar year 2021, and that the $80 billion limit established under the senior preferred stock purchase agreement operates as an independent limit on our multifamily business volume. We continue to discuss certain interpretive questions about the new covenants with FHFA and to assess their operational and business impacts. For information on how conservatorship may affect our business activities, see “Risk Factors” in our 2020 Form 10-K.unpaid principal balance financed.
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Fannie Mae First Quarter 20212022 Form 10-Q | 4840 |
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| MD&A | Multifamily Business | Multifamily Business Metrics |
In October 2021, FHFA announced that the multifamily loan purchase cap for 2022 will be $78 billion. A minimum of 50% of loan purchases must be mission-driven, focused on specified affordable and underserved market segments. In addition, 25% of loan purchases must be affordable to residents earning 60% or less of area median income, up from the 20% requirement in 2021.
For information on how conservatorship may affect our business activities, see “Risk Factors—GSE and Conservatorship Risk” in our 2021 Form 10-K.
Presentation of Our Multifamily Guaranty Book of Business
For purposes of the information reported in this “Multifamily Business” section, we measure our multifamily guaranty book of business using the unpaid principal balance of mortgage loans underlying Fannie Mae MBS. By contrast, the multifamily guaranty book of business presented in the “Composition of Fannie Mae Guaranty Book of Business” table in the “Guaranty Book of Business” section is based on the unpaid principal balance of Fannie Mae MBS outstanding, rather than the unpaid principal balance of the underlying mortgage loans.outstanding. These amounts differ primarily as a result of payments we receive on underlying loans that have not yet been remitted to the MBS holders.
Multifamily Guaranty Book of Business
(Dollars in billions)
(1)Our multifamily guaranty book of business primarily consists of multifamily mortgage loans underlying Fannie Mae MBS outstanding, multifamily mortgage loans of Fannie Mae held in our retained mortgage portfolio, and other credit enhancements that we provide on multifamily mortgage assets. It does not include non-Fannie Mae multifamily mortgage-related securities held in our retained mortgage portfolio for which we do not provide a guaranty.
Average charged guaranty fee represents our effective revenue rate relative to the size of our multifamily guaranty book of business. Management uses this metric to assess the return we earn as compensation for the multifamily credit risk we manage. Average charged guaranty fee increased in the first quarter of 20212022 compared with the first quarter of 20202021 due to increased pricing on new multifamily business. While ourOur multifamily guaranty fee pricing is primarily based on the individual credit risk characteristics of the loans we acquire itand the aggregate credit risk characteristics of our multifamily guaranty book of business. Our multifamily guaranty fee pricing is also influenced by market forces such as the availability of other sources of liquidity, our mission-related goals, the FHFA volume cap, interest rates, MBS spreads, and the management of the overall composition of our overall portfolio composition.multifamily guaranty book of business. Interest rates have increased significantly since the beginning of the year and may increase further, which combined with increased market competition, could result in lower guaranty fees for new acquisitions in future periods to offset the borrowers’ higher borrowing costs.
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Fannie Mae First Quarter 20212022 Form 10-Q | 4941 |
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| MD&A | Multifamily Business | Multifamily Business Financial Results |
| Multifamily Business Financial Results(1) | Multifamily Business Financial Results(1) | Multifamily Business Financial Results(1) |
| | | For the Three Months Ended March 31, | | | | For the Three Months Ended March 31, | |
| | | 2021 | | 2020 | | Variance | | | 2022 | | 2021 | | Variance |
| | | (Dollars in millions) | | | (Dollars in millions) |
| Net interest income | Net interest income | | | $ | 848 | | | $ | 806 | | | $ | 42 | | Net interest income | | | $ | 1,144 | | | $ | 848 | | | $ | 296 | |
| Fee and other income | Fee and other income | | | 25 | | | 26 | | | (1) | | Fee and other income | | | 22 | | | 25 | | | (3) | |
| Net revenues | Net revenues | | | 873 | | | 832 | | | 41 | | Net revenues | | | 1,166 | | | 873 | | | 293 | |
| Fair value gains, net | | | 44 | | | 184 | | | (140) | | |
| Fair value gains (losses), net | | Fair value gains (losses), net | | | (47) | | | 44 | | | (91) | |
| Administrative expenses | Administrative expenses | | | (125) | | | (120) | | | (5) | | Administrative expenses | | | (125) | | | (125) | | | — | |
Credit-related income (expense)(2) | | | 91 | | | (413) | | | 504 | | |
Credit-related income(2) | | Credit-related income(2) | | | 35 | | | 91 | | | (56) | |
Credit enhancement expense | Credit enhancement expense | | | (58) | | | (60) | | | 2 | | Credit enhancement expense | | | (68) | | | (58) | | | (10) | |
Change in expected credit enhancement recoveries(3)(4) | Change in expected credit enhancement recoveries(3)(4) | | | (15) | | | 130 | | | (145) | | Change in expected credit enhancement recoveries(3)(4) | | | (9) | | | (15) | | | 6 | |
Other expense, net(4) | | | (51) | | | (61) | | | 10 | | |
Other expenses, net(5) | | Other expenses, net(5) | | | (74) | | | (51) | | | (23) | |
| Income before federal income taxes | Income before federal income taxes | | | 759 | | | 492 | | | 267 | | Income before federal income taxes | | | 878 | | | 759 | | | 119 | |
| Provision for federal income taxes | Provision for federal income taxes | | | (160) | | | (99) | | | (61) | | Provision for federal income taxes | | | (179) | | | (160) | | | (19) | |
| Net income | Net income | | | $ | 599 | | | $ | 393 | | | $ | 206 | | Net income | | | $ | 699 | | | $ | 599 | | | $ | 100 | |
(1)See “Note 9, Segment Reporting” for information about our segment allocation methodology.
(2)Consists of the benefit or provision for credit losses and foreclosed property income or expense.
(3)Primarily consists of costs associated with our Multifamily CIRTTM (“MCIRTTM”) and Multifamily Connecticut Avenue SecuritiesTM (“MCASTM”) programs as well as amortization expense for certain lender risk-sharing programs.
(4)Consists of change in benefits recognized from our freestanding credit enhancements that primarily relatesrelate to our Delegated Underwriting and Servicing (“DUS®”) lender risk-sharing.
(4)(5)Consists of investment gains or losses, gains or losses from partnership investments, debt extinguishment gains or loss,losses, and other income or expenses.
Net Interest Income
NetMultifamily net interest income increased in the first quarter of 20212022 compared with the first quarter of 20202021 primarily due to higher guaranty fee income due toas a result of an increase in the size of our multifamily guaranty book of business andcombined with an increase in average charged guaranty fees partially offset by lowerand higher yield maintenance fees.revenue related to the prepayment of multifamily loans.
Credit-Related Income (Expense)
Credit-related income for the first quarter of 2022 was the result of a reduction in our credit loss reserves primarily due to strong multifamily market fundamentals.
Credit-related income for the first quarter of 2021 was primarily driven by a benefit from actual and projected economic data and lower expected losses resulting from the COVID-19 pandemic.
Credit-related expense for the first quarter of 2020 was primarily driven by an increase in our allowance for loan losses due to losses we expected to incur as a result of the COVID-19 pandemic.
See “Consolidated Results of Operations—Credit-Related Income (Expense)” in this report for more information on our multifamily benefit (provision)or provision for credit losses.
Change in Expected Credit Enhancement Recoveries
Expected credit enhancement recoveries, which are impacted by changes in our allowance, decreased in the first quarter of 2021 compared with the first quarter of 2020 primarily due to lower expected losses.
Multifamily Mortgage Credit Risk Management
This section supplements and updates our discussion of multifamily mortgage credit risk management in our 20202021 Form 10-K in “MD&A—Multifamily Business—Multifamily Mortgage Credit Risk Management.” For an overview of key elements of our mortgage credit risk management, see "Business—“Business—Managing Mortgage Credit Risk"Risk” in our 20202021 Form 10-K.
Multifamily Acquisition Policy and Underwriting Standards
Our Multifamily business is responsible for pricing and managing the credit risk on our multifamily guaranty book of business, with oversight from our Enterprise Risk Management division. Multifamily loans that we purchase or that back Fannie Mae MBS are underwritten by a Fannie Mae-approved lender and may be subject to our underwriting review prior to closing, depending on the product type, loan size, market and/or other factors. Our underwriting standards generally include, among other things, property cash flow analysis and third-party appraisals.
Additionally, our standards for multifamily loans specify maximum original LTV ratio and minimum original debt service coverage ratio (“DSCR”) values that vary based on loan characteristics. Our experience has been that original LTV ratio
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| Fannie Mae First Quarter 2022 Form 10-Q | 42 |
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and DSCR values have been reliable indicators of future credit performance. At underwriting, we evaluate the DSCR based on both actual and underwritten debt service payments. The original DSCR is calculated using the underwritten debt service payments for the loan, which assumes both principal and interest payments, including stressed assumptions in certain cases, rather than the actual debt service
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Fannie Mae First Quarter 2021 Form 10-Q | 50 |
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payments. Depending on the loan’s interest rate and structure, using the underwritten debt service payments maywill often result in a more conservative estimate of the debt service payments (for example, loans with an interest-only period). This approach is used for all loans, including those with full and partial interest-only terms.terms.
To address possible fluctuations in borrower incomeThe following table displays certain key risk characteristics of our multifamily guaranty book of business that we use to evaluate the risk profile and expenses resulting from the COVID-19 pandemic, we instituted additional reserve requirements in 2020 for certain newcredit quality of our multifamily loan acquisitions depending on the product type, LTV ratio and DSCR.loans.
| | Key Risk Characteristics of Multifamily Guaranty Book of Business | Key Risk Characteristics of Multifamily Guaranty Book of Business | Key Risk Characteristics of Multifamily Guaranty Book of Business |
| | As of | | As of |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2020 | | March 31, 2022 | | December 31, 2021 | | March 31, 2021 |
| Weighted average original LTV ratio | | 66 | | % | | | 66 | | % | | | 66 | | % | |
| Weighted-average original LTV ratio | | Weighted-average original LTV ratio | | 65 | | % | | | 65 | | % | | | 66 | | % |
| Original LTV ratio greater than 80% | Original LTV ratio greater than 80% | | 1 | | | 1 | | | 1 | | | Original LTV ratio greater than 80% | | 1 | | | 1 | | | 1 | | |
| Original DSCR less than or equal to 1.10 | Original DSCR less than or equal to 1.10 | | 10 | | | 10 | | | 11 | | | Original DSCR less than or equal to 1.10 | | 12 | | | 11 | | | 10 | | |
| Full term interest-only loans | Full term interest-only loans | | 31 | | | 30 | | | 27 | | | Full term interest-only loans | | 34 | | | 33 | | | 31 | | |
Partial term interest-only loans(1) | Partial term interest-only loans(1) | | 52 | | | 51 | | | 51 | | | Partial term interest-only loans(1) | | 51 | | | 51 | | | 52 | | |
|
(1)Consists of mortgage loans that were underwritten with an interest-only term, regardless of whether the loan is currently in its interest-only period.
We provide additional information on the credit characteristics of our multifamily loans in quarterly financial supplements, which we furnish to the SEC with current reports on Form 8-K. Information in our quarterly financial supplements is not incorporated by reference into this report.
Transfer of Multifamily Mortgage Credit Risk
Lender risk-sharing is a cornerstone of our Multifamily business. We primarily transfer risk through our Delegated Underwriting and Servicing (“DUS®”) program, which delegates to DUS lenders the ability to underwrite and service multifamily loans, in accordance with our standards and requirements. DUS lenders receive credit risk-related revenuesSee “MD&A—Multifamily Business—Multifamily Mortgage Credit Risk Management—Transfer of Multifamily Mortgage Credit Risk” in our 2021 Form 10-K for their respective portion of credit risk retained, and, in turn, are required to fulfill any loss-sharing obligation. This aligns the interests of the lender and Fannie Mae throughout the life of the loan. We monitor the capital resources and loss sharing capacitya description of our DUS lenders on an ongoing basis.program.
Our DUS model typically results in our lenders sharing on a pro-rata or tiered basis approximately one-third of the credit risk on our multifamily loans. Lenders in the DUS program may also share in loan-level credit losses up to the first 5% of the unpaid principal balance of the loan and then share with us any remaining losses up toloans, either on a prescribed limit.pro-rata or tiered basis. Loans serviced by DUS lenders and their affiliates represented substantially all of our multifamily guaranty book of business as of March 31, 20212022 and December 31, 2020.2021. In certain situations, to effectively manage our counterparty risk, we do not allow the lender to fully share in one-third of the credit risk, but have them share in a smaller portion.
While not a large portion of our multifamily guaranty book of business, our non-DUS lenders typically also have lender risk-sharing, where the lenders typically share or absorb losses based on a negotiated percentage of the loan or the pool balance.
To complement our front-end lender-risk sharing program, we have engagedengage in back-end credit risk transfer transactions through our Multifamily CIRTTM (“MCIRTTM”) and Multifamily CASConnecticut Avenue SecuritiesTM (“MCASTM”) transactions. Through these transactions, we have transferredtransfer a portion of the credit risk associated with Fannie Mae losses on a reference pool of multifamily mortgage loans.loans to insurers, reinsurers, or investors.
Our back-end multifamily credit-risk sharing transactions were primarily designed to further reduce the capital requirements associated with loans in the reference pool with the associated benefit of additional credit risk protection in the event of a stress environment. We have transferredtransfer multifamily credit risk through lender risk-sharing at the time of acquisition, but our multifamily back-end credit risk transfer activity has occurredoccurs later, typically up to a year or more after acquisition.
We havedid not enteredenter into any new back-end credit risk transfer transactions sincein the first quarter of 2020 as2022. The factors that we evaluate their costs and benefits, including a reductionexpect will affect the extent to which we engage in the capital relief these transactions provide under FHFA’s enterprise regulatory capital framework. We may engage inmultifamily credit risk transfer transactions in the future which could help us manage capital and manage within our risk appetite. Thethe structure of and extent to which we engage in any additional credit risk transferthose transactions will be affected by the enterprise regulatory capital framework,include our risk appetite, the strength of future market conditions, including the cost of thesethe transactions, andFHFA guidance or requirements (including FHFA’s scorecard), the review ofcapital relief provided by the transactions, and our overall business and capital plan.plans.
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Fannie Mae First Quarter 20212022 Form 10-Q | 5143 |
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The table below displays the total unpaid principal balance of multifamily loans and the percentage of our multifamily guaranty book of business, based on unpaid principal balance, that areis covered by a back-end credit risk transfer transaction. The table does not reflect front-end lender risk-sharing arrangements, as only a small portion of our multifamily guaranty book of business doesis not includecovered by these arrangements.
| | Multifamily Loans in Back-End Credit Risk Transfer Transactions | Multifamily Loans in Back-End Credit Risk Transfer Transactions | Multifamily Loans in Back-End Credit Risk Transfer Transactions |
| | As of | | As of |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | Unpaid Principal Balance | | Percentage of Multifamily Guaranty Book of Business | | Unpaid Principal Balance | | Percentage of Multifamily Guaranty Book of Business | | Unpaid Principal Balance | | Percentage of Multifamily Guaranty Book of Business | | Unpaid Principal Balance | | Percentage of Multifamily Guaranty Book of Business |
| | (Dollars in millions) | | (Dollars in millions) |
| MCIRT | MCIRT | | $ | 71,302 | | | 18 % | | $ | 72,166 | | | 19 | % | MCIRT | | $ | 82,379 | | | 20 | % | | $ | 84,894 | | | 20 | % |
| MCAS | MCAS | | 28,711 | | | 7 | | | 28,968 | | | 7 | | MCAS | | 26,569 | | | 6 | | | 27,088 | | | 7 | |
| Total | Total | | $ | 100,013 | | | 25 | % | | $ | 101,134 | | | 26 | % | Total | | $ | 108,948 | | | 26 | % | | $ | 111,982 | | | 27 | % |
Multifamily Portfolio Diversification and Monitoring
Diversification within our multifamily book of business by geographic concentration, term to maturity, interest-rate structure, borrower concentration, loan size and credit enhancement coverage are important factors that influence credit performance and help reduce our credit risk.
As part of our ongoing credit risk management process, we and our lenders monitor the performance and risk characteristics of our multifamily loans and the underlying properties on an ongoing basis throughout the loan term at the asset and portfolio level. We require lenders to provide quarterly and annual financial updates for the loans for which we are contractually entitled to receive such information. We closely monitor loans with an estimated current DSCR below 1.0, as that is an indicator of heightened default risk. The percentage of loans in our multifamily guaranty book of business, calculated based on unpaid principal balance, with a current DSCR less than 1.0 was approximately 2% as of March 31, 20212022 and December 31, 2020. Our estimates of current DSCRs are based on the latest available income information for these properties and exclude co-op loans. Although we use the most recently available results from our multifamily borrowers, there is a lag in reporting, which typically can range from three to six months, but in some cases may be longer. Accordingly, the financial information we have received from borrowers may not reflect the most recent impacts of the COVID-19 pandemic.2021.
In addition to the factors discussed above, we track the following credit risk characteristics to determine loan credit quality indicators, which are the internal risk categories we use and which are further discussed in “Note 3, Mortgage Loans”:
•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, we closely monitor the rental payment trends and vacancy levels in local markets, as well as capitalization rates, to identify loans that merit closer attention or loss mitigation actions. We also manage our exposure to refinancing risk for multifamily loans maturing in the next several years. Interest rates have increased significantly since the beginning of the year and may increase further. Rising interest rates may reduce the ability of multifamily borrowers to refinance their loans, which often have balloon balances at maturity. We have a team that proactively manages upcoming loan maturities to minimize lossesprovide additional information on maturing loans. This team assists lenders and borrowers with timely and appropriate refinancingthe maturity schedule of maturing loans with the goal of reducing defaults and foreclosures related to these loans. The primary asset management responsibilities for our multifamily loans are performedin quarterly financial supplements, which we furnish to the SEC with current reports on Form 8-K and make available on our website. Information in our quarterly financial supplements is not incorporated by reference into this report.
For additional information on credit risk characteristics of our DUSmultifamily loans and other multifamily lenders. We periodically evaluate these lenders’factors that we monitor to assess the performance of our Multifamily business, see “MD&A—Multifamily Business—Multifamily Mortgage Credit Risk Management—Multifamily Portfolio Diversification and Monitoring” in our 2021 Form 10-K. See “Note 3, Mortgage Loans” for compliance withthe internal risk categories we use to determine our asset management criteria.loan credit quality.
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Fannie Mae First Quarter 2021 Form 10-Q | 52 |
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Multifamily Problem Loan Management and Foreclosure Prevention
In addition to the credit performance information on our multifamily loans provided below, we provide information about multifamily loans in a COVID-19-related forbearance that back MBS and whole loan REMICs in a “Multifamily MBS COVID-19 Forbearance List” in the “Data Collections” section of our DUS Disclose® tool, available at www.fanniemae.com/dusdisclose. Information on our website is not incorporated into this report.
Delinquency Statistics on our Multifamily Problem Loans
The percentage of our multifamily loans classified as substandard in our guaranty book of business increased as of March 31, 20212022 compared with December 31, 2020,2021, due to the continued impact of COVID-19. Substandard loans are loans that have a well-defined weakness that could impact their timely full repayment. WhileWhile the majority of the substandard loans in our multifamily guaranty book of business are currently making timely payments or are in forbearance, we continue to monitor the performance of the fullour substandard loan population. For more information on our credit quality indicators, including our population of substandard loans, see “Note 3, Mortgage Loans.”
Our multifamily serious delinquency rate decreased to 0.38% as of March 31, 2022 compared with 0.42% as of December 31, 2021 and 0.66% as of March 31, 2021, compared with 0.98%primarily as a result of December 31, 2020, primarily driven by loans that received forbearance that are now in a forbearanceresolving their delinquency through completion of their repayment plan or have been modifiedplans or otherwise reinstated. This rate increased from 0.05% as of March 31, 2020 due to the economic dislocation caused by the COVID-19 pandemic, which increased borrower participation in forbearance plans since the start of the pandemic.reinstating. Our multifamily serious delinquency rate consists of multifamily loans that were 60 days or more past due based on unpaid principal balance, expressed as a percentage of our multifamily guaranty book of business. OurThe percentage of loans in our multifamily serious delinquency rate includes 0.32% and 0.50%guaranty book of multifamily loansbusiness that were 180 days or more past duedelinquent was 0.21% as of March 31, 2021 and2022, compared with 0.23% as of December 31, 2020, respectively. 2021.
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| Fannie Mae First Quarter 2022 Form 10-Q | 44 |
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Management monitors the multifamily serious delinquency rate as an indicator of potential future credit losses and loss mitigation activities. Serious delinquency rates are reflective of our performance in assessing and managing credit risk associated with multifamily loans in our guaranty book of business. Typically, higher serious delinquency rates result in a higher allowance for loan losses.
Our multifamily serious delinquency rate, excluding loans that received a forbearance, was 0.03% as of March 31, 2021 and2022, compared with 0.04% as of December 31, 2020.2021. We monitor thisthe multifamily serious delinquency rate excluding loans that received a forbearance to better understand the impact that forbearance activity has had on multifamily serious delinquencythe rate and the performance ofto monitor loans that are seriously delinquent not as a result of COVID-19.COVID-19 or natural disasters.
COVID-19 Forbearance and Multifamily Eviction Moratorium
In response to the COVID-19 pandemic and its impact, we have broadly offered forbearance to affected multifamily borrowers, as we describe in “MD&A—Multifamily Business—Multifamily Credit Risk Management—Multifamily Problem Loan Management and Foreclosure Prevention” in our 2020 Form 10-K.” Since 2020, we have delegated to our lenders the ability to provide forbearance for up to six monthly payments for most loan types through June 30, 2021. For any forbearance request extending beyond six months, we do not delegate the decision and we will determine whether to extend relief based on the borrower’s circumstances. For delegated forbearances, borrowers are required to bring their loans current within a time period determined by multiplying the number of months of forbearance by four. For example, a three-month forbearance would translate into a twelve-month repayment period. In exchange for receiving forbearance, borrowers must agree to suspend tenant evictions for nonpayment of rent, provide monthly operating statements and remit any excess cash flow to our servicers on a monthly basis, to be held until the end of the forbearance period and then applied to missed mortgage payments.
In March 2021, the CDC extended its moratorium on evictions through June 30, 2021, as described in “Legislation and Regulation” in this report and in “Business—Legislation and Regulation—U.S. Government Response to COVID-19” in our 2020 Form 10-K.
Multifamily Loan Forbearance
We estimate that 1.6% of our multifamily book of business as of March 31, 2020, based on unpaid principal balance, has been in a COVID-19-related forbearance at some point in time through March 31, 2021. As shown in the table below, some of these loans have exited forbearance into a repayment plan, have reinstated, have defaulted, or have since liquidated.
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Fannie Mae First Quarter 2021 Form 10-Q | 53 |
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| MD&A | Multifamily Business | Multifamily Mortgage Credit Risk Management |
The table below displays the status as of March 31, 2021 of the multifamily loans in our guaranty book of business that have received a forbearance since the start of the pandemic, as well as the serious delinquency rate of such loans. As of March 31, 2021,2022, nearly all of our multifamily loans inthat have received forbearance were associated with a COVID-19-related financial hardship. Seniors housinghardship, but only a small portion of these loans which constituted 4.3% of our multifamily guaranty book of business asremained in forbearance. As of March 31, 2021, comprised approximately 40% of the total2022, there were 18 multifamily loans with an unpaid principal balance of multifamily$246 million in active forbearance, compared with 22 loans that received a forbearance and remained in our multifamily guaranty book as of March 31, 2021. Of those multifamily senior housing loans that received a forbearance as of the end of the period, based onwith an unpaid principal balance 56% were in a repayment plan, 33% were reinstated, 8% have defaulted on their forbearance arrangement and the remaining 3% were in active forbearance.
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Status and SDQ Rate of Multifamily Forbearance Loans Outstanding(1) |
| | As of March 31, 2021 |
| | Number of Loans | | | | Unpaid Principal Balance | | Percentage of Unpaid Principal Balance in Book of Business | | Percentage of Unpaid Principal Balance with Forbearance by Category | | Percentage of Loans on Accrual Status | | Serious Delinquency Rate |
| | (Dollars in millions) |
| | | | | | | | | | | | | | |
| Loans that received a forbearance, by status: | | | | | | | | | | | | | | |
Active forbearance(2) | | 64 | | | | | $ | 917 | | | 0.2 | % | | 18 | % | | 31 | % | | 99 | % |
| Repayment plan | | 188 | | | | | 2,736 | | | 0.7 | | | 53 | | | 80 | | | 48 | |
Reinstated(3) | | 65 | | | | | 1,168 | | | 0.3 | | | 23 | | | 52 | | | — | |
Defaulted(4) | | 40 | | | | | 325 | | | 0.1 | | | 6 | | | — | | | 96 | |
| Total loans that received a forbearance | | 357 | | | | | 5,146 | | | 1.3 | | | 100 | % | | 61 | | | 49 | |
| Loans that have not received a forbearance | | 29,127 | | | | | 393,947 | | | 98.7 | | | — | | | 100 | | | 0.03 | |
| Total multifamily guaranty book of business | | 29,484 | | | | | $ | 399,093 | | | 100 | % | | 1.3 | % | | 99 | % | | 0.66 | % |
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| | As of December 31, 2020 |
| | Number of Loans | | | | Unpaid Principal Balance | | Percentage of Unpaid Principal Balance in Book of Business | | Percentage of Unpaid Principal Balance with Forbearance by Category | | Percentage of Loans on Accrual Status | | Serious Delinquency Rate |
| | (Dollars in millions) |
| Loans that received a forbearance, by status: | | | | | | | | | | | | | | |
Active forbearance(2) | | 88 | | | | $ | 1,689 | | | 0.4 | % | | 32 | % | | 32 | % | | 100 | % |
| Repayment plan | | 183 | | | | 2,707 | | | 0.8 | | | 52 | | | 82 | | | 61 | |
Reinstated(3) | | 56 | | | | 491 | | | 0.1 | | | 10 | | | 100 | | | — | |
Defaulted(4) | | 33 | | | | | 325 | | | 0.1 | | | 6 | | | — | | | 100 | |
| Total loans that received a forbearance | | 360 | | | | | 5,212 | | | 1.4 | | | 100 | % | | 63 | | | 71 | |
| Loans that have not received a forbearance | | 28,285 | | | | | 379,335 | | | 98.6 | | | — | | | 100 | | | 0.03 | |
| Total multifamily guaranty book of business | | 28,645 | | | | | $ | 384,547 | | | 100 | % | | 1.4 | % | | 99 | % | | 0.98 | % |
(1)Excludes $275 million as of March 31, 2021 and $123$363 million as of December 31, 2020 in multifamily loans that received a forbearance, but liquidated prior to period end.2021.
(2)Includes loans that are in the process of extending their forbearance.
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Fannie Mae First Quarter 2021 Form 10-Q | 54 |
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| MD&A | Multifamily Business | Multifamily Mortgage Credit Risk Management |
(3)Represents loans that are no longer in forbearance but are current accordingFor additional information on our response to the original terms of the loan or have been modified and are performing under the modification.
(4)Includes loans that are no longer in forbearance and are not on a repayment plan. Loans in this population may proceed to other loss mitigation activities, such as foreclosure or modification. As of March 31, 2021, the serious delinquency rate was less than 100% due to one loan having made a recent payment.
Under our nonaccrual accounting policy for loans negatively impacted by the COVID-19 pandemic, we continue to accrue interest income for up to six months provided that the loans were current as of March 1, 2020. see “MD&A—Multifamily loans that are in a forbearance plan beyond six months past due are placed on nonaccrual status unless the loan is both well securedBusiness—Multifamily Mortgage Credit Risk Management—Multifamily Problem Loan Management and in the process of collection. See Note 1, Summary of Significant Accounting Policies”Foreclosure Prevention” in our 20202021 Form 10-K and “Note 3, Mortgage Loans” in this report for10-K. We also provide additional information about our nonaccrual accounting policy.
Foron multifamily loans that received forbearance and wereforbearances in our book of business as of March 31, 2021, we have recorded a total accrued interest receivable balance of $66 million, forquarterly financial supplements, which we have established a valuation allowance of $7 million.furnish to the SEC with current reports on Form 8-K and make available on our website. Information in our quarterly financial supplements is not incorporated by reference into this report.
Multifamily REO Management
The number of multifamily foreclosed properties held for sale was 1932 properties with a carrying value of $189$368 million as of March 31, 2021,2022, compared with 1431 properties with a carrying value of $114$302 million as of December 31, 2020. The increase was primarily driven by a seniors housing portfolio that defaulted on its forbearance arrangement.
2021. We expect a continued increase in our multifamily foreclosed properties due toadditional foreclosures on loans that received a COVID-19 forbearance butthat are unable to successfully cure their delinquency through a repayment plan or other modification.
Other Multifamily Credit Information
Multifamily Credit Loss Performance Metrics
The amount of multifamily credit loss or income we realize in a given period is driven by foreclosures, pre-foreclosure sales, REO activity and write-offs, net of recoveries. Our multifamily credit loss performance metrics are not defined terms and may not be calculated in the same manner as similarly titled measures reported by other companies. We believe our multifamily credit losses, and our multifamily credit losses net of freestanding loss-sharing benefit, may be useful to stakeholders because they display our credit losses in the context of our multifamily guaranty book of business, including the benefit we receive from loss-sharing arrangements. Management views multifamily credit losses, net of freestanding loss-sharing benefit, as a key metric related to our multifamily business model and our strategy to share multifamily credit risk.
The table below displays the components of our multifamily credit loss performance metrics, as well as our multifamily initial write-off severity rate.
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| Multifamily Credit Loss Performance Metrics |
| | | | For the Three Months Ended March 31, | |
| | | | | | | 2021 | | | 2020 |
| | | | | | | | (Dollars in millions) | |
Write-offs(1) | | | | | | | | | $ | (34) | | | | $ | (20) | | |
Recoveries(2) | | | | | | | | | 1 | | | | 1 | | |
| Foreclosed property expense | | | | | | | | | (12) | | | | (2) | | |
| Credit losses | | | | | | | | | (45) | | | | (21) | | |
Freestanding loss-sharing benefit(3) | | | | | | | | | 15 | | | | 3 | | |
| Credit losses, net of freestanding loss-sharing benefit | | | | | | | | | $ | (30) | | | | $ | (18) | | |
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Credit loss ratio (in bps)(4) | | | | | | | | | 4.6 | | | | 2.5 | | |
Credit loss ratio, net of freestanding loss-sharing benefit (in bps)(3)(4) | | | | | | | | | 3.1 | | | | 2.1 | | |
Multifamily initial write-off severity rate(5) | | | | | | | | | 13.8 | | % | | 23.3 | | % |
| Multifamily loan write-off count | | | | | | | | | 9 | | | | 3 | | |
(1)Includes loan write-offs pursuant to the Advisory Bulletin. Write-offs associated with non-REO sales are net of loss sharing.
(2)Excludes a decrease of $13 million and an increase of $2 million in estimated recoveries for the first quarter of 2021 and 2020, respectively, relating to amounts previously written off pursuant to the Advisory Bulletin. Under the CECL standard we adopted on January 1, 2020, estimated recoveries of amounts previously written off due to improved valuations are recorded as a component of “Benefit (provision) for credit losses” in our condensed consolidated statements of operations and comprehensive income and are adjusted over
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Fannie Mae First Quarter 20212022 Form 10-Q | 55 |
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| MD&A | Multifamily Business | Multifamily Mortgage Credit Risk Management |
time as expectations change. The changes in expected loss-sharing benefit associated with these recoveries are included in “Freestanding loss-sharing benefit.”
(3)Represents expected benefits that we receive upon foreclosure as a result of certain freestanding credit enhancements, primarily multifamily DUS lender risk-sharing transactions, as well as the expected loss-sharing benefit from write-offs pursuant to the Advisory Bulletin. These benefits are recorded in “Change in expected credit enhancement recoveries” in our condensed consolidated statements of operations and comprehensive income.
(4)Calculated based on the annualized amount of “Credit losses” and “Credit losses, net of freestanding loss-sharing benefit,” divided by the average multifamily guaranty book of business during the period.
(5)Rate is calculated as the initial write-off amount divided by the average defaulted unpaid principal balance. The rate excludes write-offs pursuant to the provisions of the Advisory Bulletin and any costs, gains or losses associated with REO after initial acquisition through final disposition. Write-offs are net of lender loss-sharing agreements.
Although we saw a small amount of credit losses as a result of the COVID-19 pandemic in the first quarter of 2021 and our expectation for losses related to the pandemic has improved, we expect our realized multifamily credit losses will be higher over the long term as loans that have been materially impacted by COVID-19 are ultimately unable to reperform. See “Risk Factors” in our 2020 Form 10-K for additional information on the potential credit risk impact of the COVID-19 pandemic.
Multifamily Loss Reserves
Our multifamily loss reserves, which include our allowance for loan losses and the related accrued interest receivable, and our reserve for guaranty losses, provide for an estimate of credit losses in our multifamily guaranty book of business.
The table below summarizes the changes in our multifamily loss reserves, excluding credit losses on our AFS securities. For a discussion of changes in our multifamily benefit or provision for credit losses, see “Consolidated Results of Operations—Credit-Related Income (Expense).”
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| Multifamily Loss Reserves | |
| | | | | For the Three Months Ended March 31, | |
| | | | | | | 2021 | | 2020 | |
| | | | | | (Dollars in millions) | |
| Changes in loss reserves: | | | | | | | | | | |
| Beginning balance | | | | | | | $ | (1,225) | | | $ | (268) | | |
Transition impact of the adoption of the CECL standard(1) | | | | | | | — | | | (490) | | |
| Benefit (provision) for credit losses | | | | | | | 103 | | | (410) | | |
| Write-offs | | | | | | | 34 | | | 20 | | |
| Recoveries | | | | | | | (1) | | | (1) | | |
| Ending balance | | | | | | | $ | (1,089) | | | $ | (1,149) | | |
| | | | | | | | | | |
| Expected benefit of freestanding credit enhancements on multifamily loans not netted against loss reserves as of the end of the period | | | $ | 336 | | | $ | 347 | | |
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| | | | | | | As of | |
| | March 31, 2021 | | December 31, 2020 | |
| Loss reserves as a percentage of multifamily guaranty book of business | | | 0.27 | % | | 0.32 | % | |
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(1)Includes the transition impact of $221 million for the reclassification of freestanding credit enhancements, such as DUS lender risk-sharing, to “Other assets” from “Allowance for loan losses” in our condensed consolidated balance sheets on January 1, 2020.
Troubled Debt Restructurings and Nonaccrual Loans
We continue to account for eligible COVID-19-related loss mitigation activities as permitted under the CARES Act and the Consolidated Appropriations Act of 2021, which provide relief from TDR accounting and disclosure requirements for our forbearance plans and loan modifications. See “Note 1, Summary of Significant Accounting Policies” in our 2020 Form 10-K for more information on the relief from TDR accounting and disclosure requirements.
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Fannie Mae First Quarter 2021 Form 10-Q | 5645 |
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| MD&A | Multifamily Business | Multifamily Mortgage Credit Risk Management |
The table below displays the components of our multifamily loans classified as TDRs that were on accrual status and multifamily loans on nonaccrual status. The table includes our amortized cost in HFI multifamily mortgage loans,credit loss performance metrics, as well as interest income forgoneour multifamily initial write-off severity rate and recognized for on-balance sheet TDRs on accrual status and nonaccrual loans. For more information on TDRs and nonaccrual loans see “Note 3, Mortgage Loans.”write-off loan count.
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| Multifamily TDRs on Accrual Status and Nonaccrual Loans |
| | As of |
| | March 31, 2021 | | December 31, 2020 |
| | (Dollars in millions) |
| TDRs on accrual status | | $ | 32 | | | $ | 29 | |
| Nonaccrual loans | | 2,153 | | | 2,073 | |
| Total TDRs on accrual status and nonaccrual loans | | $ | 2,185 | | | $ | 2,102 | |
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| Accruing on-balance sheet loans past due 90 days or more | | $ | 404 | | | $ | 610 | |
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| | For the Three Months Ended March 31, |
| |
| | 2021 | | 2020 |
| | (Dollars in millions) |
| Interest related to on-balance sheet TDRs on accrual status and nonaccrual loans: | | | | |
Interest income forgone(1) | | $ | 14 | | | $ | 1 | |
Interest income recognized(2) | | 9 | | | 1 | |
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| Multifamily Credit Loss Performance Metrics |
| | | | For the Three Months Ended March 31, | |
| | | | | | | 2022 | | | 2021 |
| | | | | | | | | (Dollars in millions) | |
Write-offs(1) | | | | | | | | | $ | — | | | | $ | (34) | | |
| Recoveries | | | | | | | | | 7 | | | | 1 | | |
| Foreclosed property income (expense) | | | | | | | | | 5 | | | | (12) | | |
| Credit gains (losses) | | | | | | | | | 12 | | | | (45) | | |
Freestanding loss-sharing benefit (reduction in benefit)(2) | | | | | | | | | (7) | | | | 15 | | |
| Credit gains (losses), net of freestanding loss-sharing benefit | | | | | | | | | $ | 5 | | | | $ | (30) | | |
| | | | | | | | | | | | | |
Credit gain (loss) ratio (in bps)(3) | | | | | | | | | 1.2 | | | | (4.6) | | |
Credit gain (loss) ratio, net of freestanding loss-sharing benefit (in bps)(2)(3) | | | | | | | | | 0.5 | | | | (3.1) | | |
Multifamily initial write-off severity rate(4) | | | | | | | | | 5.5 | | % | | 13.8 | | % |
| Multifamily write-off loan count | | | | | | | | | 4 | | | | 9 | | |
(1)Represents the amountWrite-offs associated with non-REO sales are net of interest income we did not recognize, but would have recognized during the period for nonaccrual loans and TDRs on accrual status held as of the end of each period had the loans performed according to their original contractual terms.loss sharing.
(2)Represents interest income recognizedexpected benefits that we receive from write-offs as a result of certain freestanding credit enhancements, primarily multifamily DUS lender risk-sharing transactions. These benefits are recorded in “Change in expected credit enhancement recoveries” in our condensed consolidated statements of operations and comprehensive income.
(3)Calculated based on the annualized amount of “Credit gains (losses)” and “Credit gains (losses), net of freestanding loss-sharing benefit,” divided by the average multifamily guaranty book of business during the period, includingperiod.
(4)Rate is calculated as the amortization of any deferred cost basis adjustments, for loans classified as TDRs on accrual statusinitial write-off amount divided by the average defaulted unpaid principal balance. The rate excludes write-offs not associated with foreclosures or nonaccrual loans held as of the end of each period. Primarily includes amounts accrued while the loans were performing. Cash received on nonaccrual loans in a forbearance plan are appliedother liquidation events (such as a reductiondeed-in-lieu of accrued interest receivable untilforeclosure or a short-sale) and any costs, gains or losses associated with REO after initial acquisition through final disposition. Write-offs are net of lender loss-sharing agreements.
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| Fannie Mae First Quarter 2022 Form 10-Q | 46 |
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| MD&A | Consolidated Credit Ratios and Select Credit Information |
Consolidated Credit Ratios and Select Credit Information
The table below displays select credit ratios on our single-family conventional guaranty book of business and our multifamily guaranty book of business, as well as the receivable has been reduced to zero, and then recognized as interest income.inputs used in calculating these ratios.
For | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Credit Ratios and Select Credit Information | | | |
| | As of | | | |
| | March 31, 2022 | | December 31, 2021 | | | |
| | Single-family | | Multifamily | | Total | | Single-family | | Multifamily | | Total | | | |
| | (Dollars in millions) | | | |
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| Credit loss reserves as a percentage of: | | | | | | | | | | | | | | | | | | | | | |
| Guaranty book of business | | 0.15 | | % | | 0.16 | | % | | 0.15 | | % | | 0.15 | | % | | 0.17 | | % | | 0.15 | | % | | | |
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| Nonaccrual loans at amortized cost | | 34.25 | | | | 52.70 | | | | 35.62 | | | | 25.63 | | | | 54.49 | | | | 27.35 | | | | | |
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| Nonaccrual loans as a percentage of: | | | | | | | | | | | | | | | | | | | | | |
| Guaranty book of business | | 0.44 | | % | | 0.30 | | % | | 0.42 | | % | | 0.57 | | % | | 0.30 | | % | | 0.54 | | % | | | |
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| Select financial information used in calculating credit ratios: | | |
| | | | | | | | | | | | | | | | | | | | | |
Credit loss reserves(1) | | $ | (5,368) | | | | $ | (663) | | | | $ | (6,031) | | | | $ | (5,088) | | | | $ | (686) | | | | $ | (5,774) | | | | | |
Guaranty book of business(2) | | 3,567,383 | | | | 419,791 | | | | 3,987,174 | | | | 3,483,054 | | | | 413,090 | | | | 3,896,144 | | | | | |
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| Nonaccrual loans at amortized cost | | 15,675 | | | | 1,258 | | | | 16,933 | | | | 19,851 | | | | 1,259 | | | | 21,110 | | | | | |
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| Components of credit loss reserves: | | | | | | | | | | | | | | | | | | | | | |
| Allowance for loan losses | | $ | (5,241) | | | | $ | (658) | | | | $ | (5,899) | | | | $ | (4,950) | | | | $ | (679) | | | | $ | (5,629) | | | | | |
| Allowance for accrued interest receivable | | (127) | | | | (1) | | | | (128) | | | | (138) | | | | (2) | | | | (140) | | | | | |
Reserve for guaranty losses(3) | | — | | | | (4) | | | | (4) | | | | — | | | | (5) | | | | (5) | | | | | |
Total credit loss reserves(1) | | $ | (5,368) | | | | $ | (663) | | | | $ | (6,031) | | | | $ | (5,088) | | | | $ | (686) | | | | $ | (5,774) | | | | | |
(1)Our multifamily credit loss reserves exclude the expected benefit of freestanding credit enhancements on multifamily loans that were negatively impacted by the COVID-19 pandemic, we continue to accrue interest income for up to six months of delinquency provided that the loan was either current$226 million as of March 1, 2020 or originated after31, 2022 and $235 million as of December 31, 2021, which are recorded in “Other assets” in our condensed consolidated balance sheets.
(2)Represents conventional guaranty book of business for single-family.
(3)Reserve for guaranty losses is recorded in “Other liabilities” in our condensed consolidated balance sheets.
Our credit loss reserves increased as of March 1 2020 according to our nonaccrual policy. Multifamily loans31, 2022 compared with December 31, 2021 primarily as a result of a provision for credit losses, which we describe in a forbearance plan beyond six months past due are placed on nonaccrual status unless the loan is both well secured and in the process“Consolidated Results of collection. The increase inOperations—Credit-Related Income (Expense).”
Our nonaccrual loans decreased as of March 31, 2022 compared with December 31, 2021 primarily as a result of loan modifications, which bring a loan current, and corresponding decrease in loans which were able to otherwise return to accrual status.
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| Fannie Mae First Quarter 2022 Form 10-Q | 47 |
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| MD&A | Consolidated Credit Ratios and Select Credit Information |
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| Consolidated Write-off Ratio and Select Credit Information | | | |
| | For the Three Months Ended March 31, | | | |
| | 2022 | | 2021 | | | |
| | Single-family | | Multifamily | | Total | | Single-family | | Multifamily | | Total | | | |
| | (Dollars in millions) | | | |
| Select credit ratio: | | | | | | | | | | | | | | | | | | | | | |
| Write-offs, net of recoveries annualized, as a percentage of the average guaranty book of business (in bps) | | (0.1) | | | | (0.7) | | | | (0.1) | | | | 0.8 | | | | 3.4 | | | 1.1 | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Select financial information used in calculating credit ratio: | | |
| Write-offs, net of recoveries | | $ | (7) | | | | $ | (7) | | | | $ | (14) | | | | $ | 68 | | | | $ | 33 | | | | $ | 101 | | | | | |
Average guaranty book of business(1) | | 3,525,219 | | | | 416,441 | | | | 3,941,660 | | | | 3,236,473 | | | | 391,820 | | | | 3,628,293 | | | | | |
(1)Average guaranty book of business is based on accrual status 90 days or more past due in the first quarter of 2021 were primarily attributed to an increase in loans in forbearance that were beyond six months past due and were not well secured or in the process of collection. For additional information on our accounting policy for nonaccrual loans, see “Note 3, Mortgage Loans.”quarter-end balances.
Liquidity and Capital Management
Liquidity Management
This section supplements and updates information regarding liquidity management in our 20202021 Form 10-K. See “MD&A—Liquidity and Capital Management—Liquidity Management” in our 20202021 Form 10-K for additional information, including discussions of our primary sources and uses of funds, our liquidity and funding risk management practices and contingency planning, factors that influence our debt funding activity, factors that may impact our access to or the cost of our debt funding and factors that could adversely affect our liquidity and funding. Also see “Risk Factors—Liquidity and Funding Risk” in our 20202021 Form 10-K for a discussion of liquidity and funding risks, including potential impacts of the COVID-19 pandemic.risks.
Debt Funding
We are currently subject to a $300 billion debt limit under our senior preferred stock purchase agreement with Treasury, which will decrease to $270 billion as of December 31, 2022. The unpaid principal balance of our aggregate indebtedness was $275.1$183.4 billion as of March 31, 2021.2022. 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. 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. Due to our debt limit, our business activities may be constrained.
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Fannie Mae First Quarter 2021 Form 10-Q | 57 |
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| MD&A | Liquidity and Capital Management |
Outstanding Debt
Total outstanding debt of Fannie Mae includes short-term and long-term debt and excludes debt of consolidated trusts. 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. Long-term debt of Fannie Mae consists of borrowings with an original contractual maturity of greater than one year.
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| Fannie Mae First Quarter 2022 Form 10-Q | 48 |
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| MD&A | Liquidity and Capital Management |
The following chart and table display information on our outstanding short-term and long-term debt based on original contractual maturity. The primary driver for theOur long-term debt continued to decrease in short-term and long-term debt from December 31, 2020 to March 31, 2021 was decreasedthe first quarter of 2022 as our funding needs compared with theremained low and were primarily satisfied through cash and other liquid assets that accumulated in prior year, in which we had unusually high liquidity demands driven by the pandemicperiods, as well as historically high loan acquisition volumes through our whole loan conduit. As a result, we did not issue new debt to replace all of our debt that paid off during first quarter of 2021.earnings.
Debt of Fannie Mae(1)
(Dollars in billions)
(1)Outstanding debt balance consists of the unpaid principal balance, premiums and discounts, fair value adjustments, hedge-related basis adjustments and other cost basis adjustments. Reported amounts include net discount unamortized cost basis adjustments and fair value adjustments of $1.6$3.2 billion and $393 million$1.6 billion as of March 31, 20212022 and December 31, 2020,2021, respectively.
(2)Short-term debt was $4.0 billion and $2.8 billion as of March 31, 2022 and December 31, 2021, respectively.
| | | | | | | | | | | | | | | | | |
| Selected Debt Information |
| | | As of |
| | | March 31, 2022 | | December 31, 2021 |
| | | (Dollars in billions) |
Selected Weighted-Average Interest Rates(1) | | | | | |
| Interest rate on short-term debt | | | 0.15 | % | | 0.03 | % |
| Interest rate on long-term debt, including portion maturing within one year | | | 1.68 | % | | 1.55 | % |
| Interest rate on callable long-term debt | | | 1.45 | % | | 1.44 | % |
| Selected Maturity Data | | | | | |
| Weighted-average maturity of debt maturing within one year (in days) | | | 62 | | | 109 | |
| Weighted-average maturity of debt maturing in more than one year (in months) | | | 55 | | | 57 | |
| Other Data | | | | | |
| Outstanding callable long-term debt | | | $ | 46.2 | | | $ | 47.0 | |
Connecticut Avenue Securities debt(2) | | | 10.4 | | | 11.2 | |
(1)Excludes the effects of fair value adjustments and hedge-related basis adjustments.
(2)Represents CAS debt issued prior to November 2018. See “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk—Credit Risk Transfer Transactions” in our 2021 Form 10-K for information regarding our Connecticut Avenue Securities.
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Fannie Mae First Quarter 20212022 Form 10-Q | 5849 |
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| MD&A | Liquidity and Capital Management |
| | | | | | | | | | | | | | | | | |
| Selected Debt Information |
| | | As of |
| | | March 31, 2021 | | December 31, 2020 |
| | | (Dollars in billions) |
Selected Weighted-Average Interest Rates(1) | | | | | |
| Interest rate on short-term debt | | | 0.06 | % | | 0.18 | % |
| Interest rate on long-term debt, including portion maturing within one year | | | 1.34 | | | 1.34 | |
| Interest rate on callable long-term debt | | | 1.38 | | | 1.40 | |
| Selected Maturity Data | | | | | |
| Weighted-average maturity of debt maturing within one year (in days) | | | 179 | | | 196 | |
| Weighted-average maturity of debt maturing in more than one year (in months) | | | 53 | | | 52 | |
| Other Data | | | | | |
| Outstanding callable long-term debt | | | $ | 57.4 | | | $ | 57.5 | |
Connecticut Avenue Securities debt(2) | | | 14.5 | | | 15.0 | |
(1)Excludes the effects of fair value adjustments and hedge-related basis adjustments.
(2)Represents CAS debt issued prior to November 2018. See “Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk—Credit Risk Transfer Transactions” in our 2020 Form 10-K and in this report for information regarding our Connecticut Avenue Securities.
We intend to repay our short-term and long-term debt obligations as they become due primarily through cash from business operations and proceeds from the issuance of additional debt securities and cash from business operations.securities.
For information on the maturity profile of our outstanding long-term debt, see “Note 7, Short-Term and Long-Term Debt.”
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Fannie Mae First Quarter 2021 Form 10-Q | 59 |
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| MD&A | Liquidity and Capital Management |
Debt Funding Activity
The table below displays activity in debt of Fannie Mae. This activity excludes the debt of consolidated trusts and intraday loans. Activity in short-term debt of Fannie Mae relates to borrowings with an original contractual maturity of one year or less while activity in long-term debt of Fannie Mae relates to borrowings with an original contractual maturity of greater than one year.borrowing. The reported amounts of debt issued and paid off during each period represent the face amount of the debt at issuance and redemption.
The decreaseAlthough we had a substantial increase in short-term debt issued during the first quarter of 2022 compared with the first quarter of 2021, most of the short-term debt issued was paid off during the quarter and we ended the quarter with $4.0 billion in outstanding short-term debt. As our funding needs remained low, we did not issue new long-term debt issued andin the first quarter of 2022. The increase in long-term debt paid off during the first quarter of 20212022 compared with the first quarter of 20202021 was primarily due to decreased funding needs as discussed above. As a result, we did not issue newan increase in the amount of maturities for shorter duration long-term debt to replace all of our debt that paid off duringin the first quarter of 2021.2022.
| | Activity in Debt of Fannie Mae | Activity in Debt of Fannie Mae | Activity in Debt of Fannie Mae |
| | | | For the Three Months Ended March 31, | | | | For the Three Months Ended March 31, |
| | For the Three Months Ended March 31, | | For the Three Months Ended March 31, |
| | | | 2021 | | | | 2022 | | 2021 |
| | | (Dollars in millions) | | | (Dollars in millions) |
| Issued during the period: | Issued during the period: | | | Issued during the period: | | |
| Short-term: | Short-term: | | | Short-term: | | |
| Amount | Amount | | | $ | 5,142 | | | $ | 160,023 | | Amount | | | $ | 48,477 | | | $ | 5,142 | |
Weighted-average interest rate(1) | Weighted-average interest rate(1) | | | * | | 1.25 | % | Weighted-average interest rate(1) | | | 0.06 | % | | * |
Long-term:(2) | Long-term:(2) | | | Long-term:(2) | | |
| Amount | Amount | | | $ | 2,815 | | | $ | 39,319 | | Amount | | | $ | — | | | $ | 2,815 | |
| Weighted-average interest rate | Weighted-average interest rate | | | 0.59 | % | | 0.70 | % | Weighted-average interest rate | | | — | % | | 0.59 | % |
| Total issued: | Total issued: | | | Total issued: | | |
| Amount | Amount | | | $ | 7,957 | | | $ | 199,342 | | Amount | | | $ | 48,477 | | | $ | 7,957 | |
| Weighted-average interest rate | Weighted-average interest rate | | | 0.21 | % | | 1.14 | % | Weighted-average interest rate | | | 0.06 | % | | 0.21 | % |
Paid off during the period:(3) | Paid off during the period:(3) | | | Paid off during the period:(3) | | |
| Short-term: | Short-term: | | | Short-term: | | |
| Amount | Amount | | | $ | 14,459 | | | $ | 128,792 | | Amount | | | $ | 47,227 | | | $ | 14,459 | |
| Weighted-average interest rate | | | 0.10 | % | | 1.52 | % | |
Weighted-average interest rate(1) | | Weighted-average interest rate(1) | | | 0.05 | % | | 0.10 | % |
Long-term:(2) | Long-term:(2) | | | Long-term:(2) | | |
| Amount | Amount | | | $ | 8,450 | | | $ | 24,164 | | Amount | | | $ | 20,353 | | | $ | 8,450 | |
| Weighted-average interest rate | Weighted-average interest rate | | | 1.04 | % | | 1.88 | % | Weighted-average interest rate | | | 1.01 | % | | 1.04 | % |
| Total paid off: | Total paid off: | | | Total paid off: | | |
| Amount | Amount | | | $ | 22,909 | | | $ | 152,956 | | Amount | | | $ | 67,580 | | | $ | 22,909 | |
| Weighted-average interest rate | Weighted-average interest rate | | | 0.45 | % | | 1.58 | % | Weighted-average interest rate | | | 0.34 | % | | 0.45 | % |
* Represents a weighted-average interest rate of less than 0.005%.
(1)Includes incomeinterest generated from negative interest rates on certain repurchase agreements, which offset our short-term funding costs. Consequently, market conditions may result in weighted-average interest rates that are negative or at zero.
(2)Includes credit risk-sharing securities issued as CAS debt prior to November 2018. For information on our credit risk transfer transactions, see “Single-Family“MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Credit Enhancement and Transfer of Mortgage Credit Risk—Credit Risk Transfer Transactions” in our 20202021 Form 10-K and in this report.10-K.
(3)Consists of all payments on debt, including regularly scheduled principal payments, payments at maturity, payments resulting from calls and payments for any other repurchases. Repurchases of debt and early retirements of zero-coupon debt are reported at original face value, which does not equal the amount of actual cash payment.
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Fannie Mae First Quarter 20212022 Form 10-Q | 6050 |
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| MD&A | Liquidity and Capital Management |
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 condensed consolidated balance sheets or may be recorded in amounts different from the full contract or notional amount of the transaction, depending on the nature or structure of, and the accounting required to be applied to, the arrangement. These arrangements are commonly referred to as “off-balance sheet arrangements” and expose us to potential losses in excess of the amounts recorded in our condensed 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 have no control, which are reflected in our unconsolidated Fannie Mae MBS net of any beneficial ownership interest we retain, and other financial guarantees that we do not control;
•liquidity support transactions; and
•partnership interests.
The total amount of our off-balance sheet exposure related to unconsolidated Fannie Mae MBS net of any beneficial interest that we retain, and other financial guarantees was $250.0 billion as of March 31, 2022 and $226.4 billion as of December 31, 2021. The majority of the other financial guarantees consists of Freddie Mac securities backing Fannie Mae structured securities. See “Guaranty Book of Business” and “Note 6, Financial Guarantees” for more information regarding our maximum exposure to loss on unconsolidated Fannie Mae MBS and Freddie Mac securities.
Our total outstanding liquidity commitments to advance funds for securities backed by multifamily housing revenue bonds totaled $5.4 billion as of March 31, 2022 and December 31, 2021. These commitments require us to advance funds to third parties that enable them to repurchase tendered bonds or securities that are unable to be remarketed. We hold cash and cash equivalents in our other investments portfolio in excess of these commitments to advance funds.
We make investments in various limited partnerships and similar legal entities, which consist of low-income housing tax credit investments, community investments and other entities. When we do not have a controlling financial interest in those entities, our condensed consolidated balance sheets reflect only our investment rather than the full amount of the partnership’s assets and liabilities. See “Note 2, Consolidations and Transfers of Financial Assets—Unconsolidated VIEs” for information regarding our limited partnerships and similar legal entities.
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| Fannie Mae First Quarter 2022 Form 10-Q | 51 |
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| MD&A | Liquidity and Capital Management |
Other Investments Portfolio
The chart below displays information on the composition of our other investments portfolio. The balance of our other investments portfolio fluctuates as a result of changes in our cash flows, liquidity in the fixed-income markets, and our liquidity risk management framework and practices.
Our other investments portfolio decreased during the first quarter of 20212022 primarily due to a decrease in our holdings of U.S. Treasury securities, including those classified as cash and federal funds soldcash equivalents. We used cash and securities purchased under agreementsother liquid assets that accumulated in prior periods, as well as our earnings, to resell. Infund our operations and to pay off maturing debt during the first quarter of 2021, we began to invest funds held by consolidated trusts directly in eligible short-term third-party investments. As the funds underlying these investments are restricted per the trust agreements, these securities are not considered in our sources of liquidity and are excluded from our other investments portfolio. Prior to this change, funds held by consolidated trusts were invested in Fannie Mae short-term debt, as allowed by the trust agreements. We then invested those proceeds in unrestricted short-term investments, which were included in our other investments portfolio. This change did not materially alter our liquidity position.2022.
| | | | | | | | |
| | Cash and cash equivalents(1) |
| | |
| | Federal funds sold and securitiesSecurities purchased under agreements to resell or similar arrangements |
| | |
| | U.S. Treasury securities |
(1) Cash equivalents are comprisedcomposed of overnight repurchase agreements and U.S. Treasuries that have a maturity at the date of acquisition of three months or less.
Cash Flows
Three Months Ended March 31, 20212022. Cash, cash equivalents and restricted cash and cash equivalents decreased from $108.6 billion as of December 31, 2021 to $89.0 billion as of March 31, 2022. The decrease was primarily driven by cash outflows primarily from (1) payments on outstanding debt of consolidated trusts, (2) purchases of loans held for investment, and (3) the redemption of funding debt, which outpaced issuances, primarily for the reasons described above.
Partially offsetting these cash outflows were cash inflows from (1) the sale of Fannie Mae MBS to third parties and (2) proceeds from repayments of loans.
Three Months Ended March 31, 2021.Cash, cash equivalents and restricted cash and cash equivalents decreased from $115.6 billion as of December 31, 2020 to $114.3 billion as of March 31, 2021. The decrease was primarily driven by cash outflows from (1) payments on outstanding debt of consolidated trusts, (2) purchases of loans held for investment, and (3) the redemption of funding debt, which outpaced issuances, primarily for the reasons described above.issuances.
Partially offsetting these cash outflows were cash inflows primarily from (1) the sale of Fannie Mae MBS to third parties and (2) proceeds from repayments and sales of loans.
Three Months Ended March 31, 2020Credit Ratings. Cash, cash equivalents and restricted cash and cash equivalents increased from $61.4 billion as of December 31, 2019 to $128.7 billion as
As of March 31, 2020. The increase was primarily driven by cash inflows from (1) proceeds from repayments2022, our credit ratings have not changed since we filed our 2021 Form 10-K. For information on our credit ratings, see “MD&A—Liquidity and sales of loans, (2) the sale of Fannie Mae MBS to third parties, and (3) the issuance of funding debt, which outpaced redemptions, primarily for the reasons described above.
Partially offsetting these cash inflows were cash outflows primarily from (1) purchases of loans held for investment and (2) payments on outstanding debt of consolidated trusts.Capital Management—Liquidity Management—Credit Ratings” in our 2021 Form 10-K.
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Fannie Mae First Quarter 20212022 Form 10-Q | 6152 |
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| MD&A | Liquidity and Capital Management |
Credit Ratings
As of March 31, 2021, our credit ratings have not changed since we filed our 2020 Form 10-K. For information on our credit ratings, see “MD&A—Liquidity and Capital Management—Liquidity Management—Credit Ratings” in our 2020 Form 10-K.
Capital Management
Capital Requirements
The deficit of our core capital over statutory minimum capital established in the GSE Act was $119.5 billion as of March 31, 2021 and $124.3 billion as of December 31, 2020. As we discuss in “Business—Legislation and Regulation—GSE Act and Other Legislative and Regulatory Matters—Capital” in our 2020 Form 10-K, FHFA has establishedpublished a final rule establishing a new enterprise regulatory capital framework whichfor the GSEs in December 2020. FHFA published a final rule amending the enterprise regulatory capital framework in March 2022. We refer to the rule’s requirements, as amended, as the “enterprise regulatory capital framework.” The enterprise regulatory capital framework establishes new supplemental leverage and risk-based capital requirements for the GSEs. Under the leverage capital requirements, we must maintain a tier 1 capital ratio of 2.5% of adjusted total assets. Under the risk-based capital requirements, we must maintain minimum common equity tier 1 capital, tier 1 capital, and adjusted total capital ratios of 4.5%, 6%, and 8%, respectively, of risk-weighted assets. For more information on the enterprise regulatory capital framework, see “Business—Legislation and Regulation—GSE-Focused Matters—Capital” in our 2021 Form 10-K and ���Legislation and Regulation—Final Rule Amending the Enterprise Regulatory Capital Framework” in this report. The enterprise regulatory capital framework requires substantially higher levels of capital than the previously applicable statutory minimum capital requirement.
Although the enterprise regulatory capital framework went into effect in February 2021. The dates on which we must comply with the quantitative requirements of the new capital framework are staggered and largely dependent on whether we remain in conservatorship. We estimate that, had the new framework’s requirements been applicable to us as of March 31, 2021, we would have beenare not required to hold approximately $190 billioncapital according to the framework’s requirements until the date of termination of our conservatorship, or such later date as may be ordered by FHFA.
Beginning in 2022, on a quarterly basis, we are required to report to FHFA and disclose in an appropriate publicly available filing or other document our regulatory capital levels, buffers, adjusted total assets, and total risk-weighted assets under the standardized approach of the enterprise regulatory capital framework.
The enterprise regulatory capital framework provides a granular assessment of credit risk specific to different mortgage loan categories, as well as components for market risk and operational risk. The enterprise regulatory capital framework includes the following requirements:
•Supplemental capital requirements relating to the amount and form of the capital we hold, based largely on definitions of capital used in U.S. banking regulators’ regulatory capital framework. The enterprise regulatory capital framework specifies complementary leverage and risk-based requirements, which approximately $140 billiontogether determine the requirements for each tier of capital;
•A requirement that we hold prescribed capital buffers that can be drawn down in periods of financial stress and then rebuilt over time as economic conditions improve. If we fall below the prescribed buffer amounts, we must restrict capital distributions such as stock repurchases and dividends, as well as discretionary bonus payments to executives, until the buffer amounts are restored. The prescribed capital buffers represent the amount of capital we are required to hold above the minimum leverage and risk-based capital requirements.
◦The prescribed leverage buffer amount (“PLBA”) represents the amount of tier 1 capital we are required to hold above the minimum tier 1 leverage capital requirement;
◦The risk-based capital buffers consist of three separate components: a stability capital buffer, a stress capital buffer, and a countercyclical capital buffer. Taken together, these risk-based buffers comprise the prescribed capital conservation buffer amount (“PCCBA”). The PCCBA must be in the formcomprised entirely of common equity tier 1 capital. Prescribed buffers drive approximately $75 billioncapital; and
•Specific minimum percentages, or “floors,” on the risk-weights applicable to single-family and multifamily exposures, as well as retained portions of credit risk transfer transactions.
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| Fannie Mae First Quarter 2022 Form 10-Q | 53 |
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| MD&A | Liquidity and Capital Management |
The table below sets forth information about our capital requirements under the standardized approach of the enterprise regulatory capital framework. Available capital for purposes of the enterprise regulatory capital framework excludes the stated value of the senior preferred stock ($120.8 billion) and other amounts specified in footnote 3 to the table. Because of these exclusions, we had a deficit in available capital as of March 31, 2022, even though we had positive net worth under GAAP of $51.8 billion as of March 31, 2022.
As shown in the table below, as of March 31, 2022, we had a $272 billion shortfall of our available capital (deficit) to the adjusted total requirements. capital requirement (including buffers) of $190 billion under the standardized approach of the rule. As of March 31, 2022, our risk-based adjusted total capital requirement (including buffers) represented the amount of capital needed to be fully capitalized under the standardized approach to the rule.
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Capital Metrics under the Enterprise Regulatory Capital Framework as of March 31, 2022(1) |
| (Dollars in billions) |
| | | | | | Stress capital buffer | | $ | 34 | |
| | | | | | Stability capital buffer | | 45 | |
| Adjusted total assets | $ | 4,529 | | | | | Countercyclical capital buffer | | — | |
| Risk-weighted assets | 1,391 | | | | | Prescribed capital conservation buffer amount | | $ | 79 | |
| | | | | | | | | | | | |
| | Minimum Capital Ratio Requirement | | Minimum Capital Requirement | | Applicable Buffers(2) | | Total Capital Requirement (including Buffers) | | Available Capital (Deficit)(3) | | Capital Shortfall(4) |
| Risk-based capital: | | | | | | | | | | | |
| Total capital(5) | 8.0 | % | | $ | 111 | | | N/A | | $ | 111 | | | $ | (63) | | | $ | (174) | |
| Common equity tier 1 capital | 4.5 | | | 63 | | $ | 79 | | | 142 | | (101) | | | (243) | |
| Tier 1 capital | 6.0 | | | 83 | | 79 | | | 162 | | (82) | | | (244) | |
| Adjusted total capital | 8.0 | | | 111 | | 79 | | | 190 | | (82) | | | (272) | |
| Leverage capital: | | | | | | | | | | | |
| Core capital(6) | 2.5 | | | 113 | | N/A | | 113 | | (69) | | | (182) | |
| Tier 1 capital | 2.5 | | | 113 | | 23 | | | 136 | | (82) | | | (218) | |
| | | | | | | | | | | | |
(1)Ratios are calculated as a percentage of risk-weighted assets for risk-based capital metrics and as a percentage of adjusted total assets for leverage capital metrics.
(2)The applicable buffer for common equity tier 1 capital, tier 1 capital, and adjusted total capital is the PCCBA, which is composed of a stress capital buffer, a stability capital buffer, and a countercyclical capital buffer. The applicable buffer for tier 1 capital (leverage based) is the PLBA. The stress capital buffer and countercyclical capital buffer are each calculated by multiplying prescribed factors by adjusted total assets as of the last day of the previous calendar quarter. The 2022 stability capital buffer is calculated by multiplying a factor determined based on our share of mortgage debt outstanding by adjusted total assets as of December 31, 2020. The prescribed leverage buffer for 2022 is set at 50% of the 2022 stability buffer. Going forward the stability buffer and the prescribed leverage buffer will be updated with an effective date that depends on whether the stability capital buffer increases or decreases relative to the previously calculated value.
(3)Available capital (deficit) for all line items excludes the stated value of the senior preferred stock ($120.8 billion). Available capital (deficit) for all line items except total capital and core capital also deducts a portion of deferred tax assets. Deferred tax assets arising from temporary differences between GAAP and tax requirements are deducted from capital to the extent they exceed 10% of common equity. As of March 31, 2022, this resulted in the full deduction of deferred tax assets ($13.1 billion) from our available capital (deficit). Available capital (deficit) for common equity tier 1 capital also excludes the value of the non-cumulative perpetual preferred stock ($19.1 billion).
(4)Our capital shortfall consists of the difference between the applicable capital requirement (including buffers) and the applicable available capital (deficit).
(5)The sum of (a) core capital (see definition in footnote 6 below); and (b) a general allowance for foreclosure losses, which (i) shall include an allowance for portfolio mortgage losses, an allowance for non-reimbursable foreclosure costs on government claims, and an allowance for liabilities reflected on the balance sheet for estimated foreclosure losses on mortgage-backed securities; and (ii) shall not include any reserves made or held against specific assets; and (c) any other amounts from sources of funds available to absorb losses that the Director of FHFA by regulation determines are appropriate to include in determining total capital.
(6)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 or (b) senior preferred stock.
As a result of our capital shortfall, our maximum payout ratio under the enterprise regulatory capital framework as of March 31, 2022 was 0%. While it is not applicable until we are required to comply with the capital requirements under the enterprise regulatory capital framework, our maximum payout ratio represents the percentage of eligible retained income that we are permitted to pay out in the form of distributions or discretionary bonus payments under the
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| Fannie Mae First Quarter 2022 Form 10-Q | 54 |
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| MD&A | Liquidity and Capital Management |
enterprise regulatory capital framework. The maximum payout ratio for a given quarter is the lowest of the payout ratios determined by our capital conservation buffer and our leverage buffer.See “Note 12, 14—Regulatory Capital Requirements” in our 2020 Form 10-Kthis report for more information on our statutory capital measuresratios as of March 31, 2022 under the GSE Act.
enterprise regulatory capital framework.
Capital Activity
Under the dividend provisionsterms governing the senior preferred stock, no dividends were payable to Treasury for the first quarter of 2022 and none are payable for the second quarter of 2022.
Under the terms governing the senior preferred stock, through and including the capital reserve end date, any increase in our net worth during a fiscal quarter results in an increase in the same amount of the aggregate liquidation preference of the senior preferred stock in the following quarter. The capital reserve end date is defined as the last day of the second consecutive fiscal quarter during which we are permittedhave had and maintained capital equal to, retain increasesor in our net worth until our net worth exceeds the amountexcess of, adjusted total capital necessary for us to meetall of the capital requirements and buffers under the enterprise regulatory capital framework discussed in “Business—Legislation and Regulation—GSE Act and Other Legislative and Regulatory Matters—Capital”framework.
As a result of these terms governing the senior preferred stock, the aggregate liquidation preference of the senior preferred stock increased by $5.2 billion to $168.9 billion as of March 31, 2022, due to the $5.2 billion increase in our 2020 Form 10-K.net worth in the fourth quarter of 2021. The aggregate liquidation preference of the senior preferred stock increased to $146.8 billion as of March 31, 2021 and will further increase to $151.7$173.3 billion as of June 30, 20212022, due to the $5.0$4.4 billion increase in our net worth duringin the first quarter of 2021.
2022. See “Business—Conservatorship, Treasury Agreements and Housing Finance Reform—Treasury Agreements” in our 20202021 Form 10-K for more information on the terms of our senior preferred stock, including how the aggregate liquidation preference is determined.
Increases in our net worth improve our capital position and our ability to absorb losses; however, increases in our net worth also increase the aggregate liquidation preference of the senior preferred stock purchase agreement with Treasury. See “Risk Factors—GSE and Conservatorship Risk” in our 2020 Form 10-K for a discussion ofby the risks associated withsame amount until the limit on our capital reserves.reserve end date as discussed above.
Treasury Funding Commitment
Treasury made a commitment under the senior preferred stock purchase agreement to provide funding to us under certain circumstances if we have a net worth deficit. As of March 31, 2021,2022, the remaining amount of Treasury’s funding commitment to us was $113.9 billion. See “Note 11, Equity” in our 20202021 Form 10-K for more information on the funding commitment provided by Treasury under the senior preferred stock purchase agreement.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements result primarily from the following:
•our guaranty of mortgage loan securitization and resecuritization transactions, and other guaranty commitments, over which we do not have control;
•liquidity support transactions; and
•partnership interests.
Some of the securities we issue are structured securities backed, in whole or in part, by Freddie Mac securities. When we issue a structured security, we provide a guaranty that we will supplement amounts received from the underlying mortgage-related security as required to permit timely payment of principal and interest on the certificates related to the resecuritization trust. Accordingly, when we issue structured securities backed in whole or in part by Freddie Mac securities, we extend our guaranty to the underlying Freddie Mac security included in the structured security. Our issuance of structured securities backed in whole or in part by Freddie Mac securities creates additional off-balance sheet exposure as we do not have control over the Freddie Mac mortgage loan securitizations. Because we do not have the power to direct matters (primarily the servicing of mortgage loans) that impact the credit risk to which we are exposed, which constitute control of these securitization trusts, we do not consolidate these trusts in our condensed consolidated balance sheet, giving rise to off-balance sheet exposure.
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Fannie Mae First Quarter 2021 Form 10-Q | 62 |
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| MD&A | Off-Balance Sheet Arrangements |
The total amount of our off-balance sheet exposure related to unconsolidated Fannie Mae MBS net of any beneficial interest that we retain, and other financial guarantees was $170.2 billion as of March 31, 2021. Approximately $126.0 billion of this amount consisted of the unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers. Additionally, off-balance sheet exposure includes approximately $28.7 billion of the unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs. We expect our off-balance sheet exposure to Freddie Mac securities to increase as we issue more structured securities backed by Freddie Mac securities in the future. The total amount of our off-balance sheet exposure related to unconsolidated Fannie Mae MBS net of any beneficial interest that we retain, and other financial guarantees was $153.6 billion as of December 31, 2020. Approximately $110.7 billion of this amount consisted of the unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers and $26.6 billion of this amount consisted of the unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs. See “Note 6, Financial Guarantees” for more information regarding our maximum exposure to loss on unconsolidated Fannie Mae MBS and Freddie Mac securities.
We also have off-balance sheet exposure to losses from liquidity support transactions and partnership interests.
•Our total outstanding liquidity commitments to advance funds for securities backed by multifamily housing revenue bonds totaled $6.1 billion as of March 31, 2021 and $6.4 billion as of December 31, 2020. These commitments require us to advance funds to third parties that enable them to repurchase tendered bonds or securities that are unable to be remarketed. We hold cash and cash equivalents in our other investments portfolio in excess of these commitments to advance funds.
•We make investments in various limited partnerships and similar legal entities, which consist of low-income housing tax credit investments, community investments and other entities. When we do not have a controlling financial interest in those entities, our condensed consolidated balance sheets reflect only our investment rather than the full amount of the partnership’s assets and liabilities. See “Note 2, Consolidations and Transfers of Financial Assets— Unconsolidated VIEs” for information regarding our limited partnerships and similar legal entities.
Risk Management
Our business activities expose us to the following major categories of risk: credit risk (including mortgage credit risk and institutional counterparty credit risk), market risk (including interest-rate risk), liquidity and funding risk, and operational risk (including cyber/information security risk, third-party risk and model risk), as well as strategic risk, compliance risk and reputational risk. See “MD&A—Risk Management” in our 20202021 Form 10-K for a discussion of our management of these risks. This section supplements and updates that discussion but does not address all of the risk management categories described in our 20202021 Form 10-K.
Institutional Counterparty Credit Risk Management
This section supplements and updates our discussion of institutional counterparty credit risk management in our 20202021 Form 10-K. See “MD&A—Risk Management—Institutional Counterparty Credit Risk Management” and “Risk Factors—Credit Risk” in our 20202021 Form 10-K for a discussion of our exposure to institutional counterparty credit risk and our strategy for managing this risk. As described in “Risk Factors” in our 2020 Form 10-K, the COVID-19 pandemic has increased our counterparty credit risk. Also see “Note 10, Concentrations of Credit Risk” in this report for an update on our counterparty credit risk exposure.
Change in Non-Depository Seller and Servicer Liquidity RequirementRequirements
A large portion of the loans in our single-family guaranty book, including a large portion of our seriously delinquent loans, are serviced by non-depository servicers. Compared with depository financial institutions, these institutions pose additional risks to us because they may not have the same financial strength or operational capacity, or be subject to the same level of regulatory oversight, as a Resultour largest depository mortgage servicer counterparties. Unlike for depository servicers, much of COVID-19 Forbearances
the capital of non-depository servicers is represented by the value of mortgage servicing rights, which is subject to variability based on market conditions and therefore is an important factor in determining capital adequacy. We have previously establishedrequire single-family non-depository servicers to meet minimum liquidity requirements for single-family non-depository servicers to maintain eligibility with Fannie Mae. WithWe actively monitor the increase in delinquent loans in forbearance plans as a resultfinancial condition and capital adequacy of the unprecedented circumstances of the COVID-19 pandemic and the CARES Act, we temporarily modified our minimum liquidity requirements for single-familythese non-depository servicers, to maintain eligibilityincluding their compliance with Fannie Mae. Beginning with the second quarter of 2020, when calculating the minimum liquidity requirement for seriously delinquent mortgage loans for non-depository servicers, an adjustment is included for mortgage loans in a COVID-19-related forbearance plan that are 90 days or more delinquent and were current at the inception of the plan. The adjustment provides partial relief of the minimum liquidity requirements for the servicers of these impacted loans.
In June 2020, FHFA announced that it would re-propose the minimum financial eligibility requirements for Fannie Mae and Freddie Mac sellers and servicers due to market volatility driven by the COVID-19 pandemic.our requirements.
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Fannie Mae First Quarter 20212022 Form 10-Q | 6355 |
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| MD&A | Risk Management | Institutional Counterparty Credit Risk Management |
Change in Private Mortgage Insurer Eligibility Requirements
Mortgage insurers must meet and maintain compliance with private mortgage insurerIn February 2022, FHFA re-proposed the minimum financial eligibility requirements (“PMIERs”) to be eligible to write mortgage insurance on loans acquired byfor Fannie Mae. The PMIERs are designed to ensure that mortgage insurers have sufficient liquid assets to pay all claims under a hypothetical future stress scenario. Under FHFA guidance, weMae and Freddie Mac published several revisions tosellers and servicers. If adopted as proposed, the PMIERs in 2020, which initially became effective June 30, 2020. The revisions include (1) a temporary adjustment when calculating risk-based required assetsrequirements will increase capital and liquidity requirements for nonperforming mortgage loans that became newly delinquent after the onset of the COVID-19 crisis or that are subject to a forbearance plan granted in response to a financial hardship related to COVID-19,our single-family non-depository sellers and (2) through June 30, 2021, a requirement for private mortgage insurers to secure prior approval from Fannie Mae to enable payment of dividends or certain new transfers of cash. The adjustment provides partial relief to mortgage insurers’ capital requirements under the PMIERs for the impacted loans.servicers.
Market Risk Management, including Interest-Rate Risk Management
We are subject to market risk, which includes interest-rate risk and spread risk. These risks arise from our mortgage asset investments. Interest-rate risk is the risk that movements in benchmark interest rates could adversely affect the fair value of our assets or liabilities.liabilities or our future earnings. Spread risk represents the change in an instrument’s fair value that relates to factors other than changes in the benchmark interest rate. The primary source of
We are exposed to interest rate risk through our interest-rate risk is the composition of our net portfolio. Our net“net portfolio, consists of:” which we define as our retained mortgage portfolio assets; other investments portfolio; outstanding debt of Fannie Mae used to fund the retained mortgage portfolio assets and other investments portfolio; and mortgage commitments and risk management derivatives. Risk management derivatives, along with our debt instruments, are usedOur goal is to manage interest-rate risk. risk from our net portfolio to be neutral to movements in interest rates and volatility on an economic basis, subject to model constraints and prevailing market conditions. We actively manage the interest-rate risk of our net portfolio through the use of interest-rate derivatives and by issuing a broad range of both callable and non-callable debt instruments.
We are also exposed to interest-rate risk in connection with mortgage assets held by our consolidated MBS trusts. One exposure is cost basis adjustments that often result from upfront cash fees exchanged at the time of loan acquisition, which include buy-ups, buy-downs, and loan-level risk-based price adjustments. Another exposure is the float income earned by MBS trusts on the short-term reinvestment of loan payments received from borrowers in highly liquid investments with short maturities, such as U.S. Treasury securities. This float income is paid to us as trust management income and recorded within “Net interest income” in our condensed consolidated financial statements.
Changes in interest rates can influence mortgage prepayment rates and float reinvestment yields. Therefore, they impact the timing of when we recognize amortization income related to cost basis amounts as well as the amount of float income generated by MBS trusts, thereby impacting our earnings. Typically, interest-rate driven changes in the timing of income recognition related to cost basis amortization are partially offset by interest-rate driven changes in the amount of float income earned. See “Consolidated Results of Operations—Net Interest Income—Analysis of Deferred Amortization Income” for more information on our outstanding net cost basis adjustments related to consolidated MBS trusts.
We do not currently actively manage or hedge, on an economic basis, our spread risk or the interest-rate risk arising from cost basis adjustments and float income associated with mortgage assets held by our consolidated MBS trusts.
For additional information on the impact of marketinterest-rate risk on our GAAP earnings, see “Earnings Exposure to Interest-Rate Risk.”Risk” below.
This section supplements and updates information regarding market risk management in our 20202021 Form 10-K. See “MD&A—Risk Management—Market Risk Management, including Interest-Rate Risk Management” and “Risk Factors”Factors—Market and Industry Risk ” in our 20202021 Form 10-K for additional information, including our sources of interest-rate risk exposure, business risks posed by changes in interest rates, and our strategy for managing interest-rate risk.
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| Fannie Mae First Quarter 2022 Form 10-Q | 56 |
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| MD&A | Risk Management | Market Risk Management, including Interest-Rate Risk Management |
Measurement of Interest-Rate Risk
The table below displays the pre-tax market value sensitivity of our net portfolio to changes in the level of interest rates and the slope of the yield curve as measured on the last day of each period presented.
The table below also provides the daily average, minimum, maximum and standard deviation values for duration gap and for the most adverse market value impact on the net portfolio to changes in the level of interest rates and the slope of the yield curve for the three months ended March 31, 20212022 and 2020.2021. Our practice is to allow interest rates to go below zero in the downward shock models unless otherwise prevented through contractual floors.
For information on how we measure our interest-rate risk, see our 20202021 Form 10-K in “MD&A—Risk Management—Market Risk Management, including Interest-Rate Risk Management.”
| | Interest-Rate Sensitivity of Net Portfolio to Changes in Interest-Rate Level and Slope of Yield Curve | Interest-Rate Sensitivity of Net Portfolio to Changes in Interest-Rate Level and Slope of Yield Curve | Interest-Rate Sensitivity of Net Portfolio to Changes in Interest-Rate Level and Slope of Yield Curve |
| | As of (1)(2) | | As of (1)(2) |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | (Dollars in millions) | | (Dollars in millions) |
| Rate level shock: | Rate level shock: | | Rate level shock: | |
| -100 basis points | -100 basis points | | $ | (142) | | | $ | (179) | | | -100 basis points | | $ | (128) | | | $ | (184) | | |
| -50 basis points | -50 basis points | | (1) | | | 8 | | | -50 basis points | | (45) | | | (69) | | |
| +50 basis points | +50 basis points | | (54) | | | (111) | | | +50 basis points | | 14 | | | 54 | | |
| +100 basis points | +100 basis points | | (81) | | | (154) | | | +100 basis points | | 5 | | | 75 | | |
| Rate slope shock: | Rate slope shock: | | Rate slope shock: | |
| -25 basis points (flattening) | -25 basis points (flattening) | | (14) | | | (9) | | | -25 basis points (flattening) | | (7) | | | (8) | | |
| +25 basis points (steepening) | +25 basis points (steepening) | | 11 | | | 4 | | | +25 basis points (steepening) | | 5 | | | 8 | | |
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Fannie Mae First Quarter 2021 Form 10-Q | 64 |
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MD&A | Risk Management | Market Risk Management, including Interest-Rate Risk Management |
| | | For the Three Months Ended March 31, (1)(3) | | For the Three Months Ended March 31, (1)(3) |
| | 2021 | | 2020 | | 2022 | | 2021 |
| | Duration Gap | | Rate Slope Shock 25 bps | | Rate Level Shock 50 bps | | Duration Gap | | Rate Slope Shock 25 bps | | Rate Level Shock 50 bps | | Duration Gap | | Rate Slope Shock 25 bps | | Rate Level Shock 50 bps | | Duration Gap | | Rate Slope Shock 25 bps | | Rate Level Shock 50 bps |
| | | | Market Value Sensitivity | | | | Market Value Sensitivity
| | | | Market Value Sensitivity | | | | Market Value Sensitivity |
| | (In years) | | (Dollars in millions) | | (In years) | | (Dollars in millions) | | (In years) | | (Dollars in millions) | | (In years) | | (Dollars in millions) |
| Average | Average | | 0.02 | | $ | (13) | | | $ | (70) | | | (0.02) | | $ | (20) | | | $ | (32) | | | Average | | (0.04) | | $ | (8) | | | $ | (62) | | | 0.02 | | $ | (13) | | | $ | (70) | | |
| Minimum | Minimum | | (0.04) | | (23) | | | (140) | | | (0.10) | | (33) | | | (144) | | | Minimum | | (0.10) | | (31) | | | (133) | | | (0.04) | | (23) | | | (140) | | |
| Maximum | Maximum | | 0.10 | | (5) | | | (36) | | | 0.12 | | (7) | | | 20 | | | Maximum | | 0.02 | | (3) | | | (15) | | | 0.10 | | (5) | | | (36) | | |
| Standard deviation | Standard deviation | | 0.02 | | 5 | | | 23 | | | 0.04 | | 6 | | | 31 | | | Standard deviation | | 0.03 | | 4 | | | 27 | | | 0.02 | | 5 | | | 23 | | |
|
(1)Computed based on changes in U.S. LIBOR interest-rates swap curve. Changes in the level of interest-ratesinterest rates assume a parallel shift in all maturities of the U.S. LIBOR interest-rate swap curve. Changes in the slope of the yield curve assume a constant 7-year rate, a shift of 16.7 basis points for the 1-year rate (and shorter tenors) and an opposite shift of 8.3 basis points for the 30-year rate. Rate shocks for remaining maturity points are interpolated.
(2)Measured on the last business day of each period presented.
(3)Computed based on daily values during the period presented.
The market value sensitivity of our net portfolio varies across a range of interest-rate shocks depending upon the duration and convexity profile of our net portfolio. The market value sensitivity of the net portfolio is measured by quantifying the change in the present value of the cash flows of our financial assets and liabilities that would result from an instantaneous shock to interest rates, assuming spreads are held constant. For the subset of floating-rate liabilities and assets that are indexed to LIBOR or SOFR, the interest component of their future cash flows is calculated using the projection of the corresponding index rate. For all assets and liabilities, the discount factor used to calculate the present value of the future cash flows is constructed using the LIBOR yield curve.
LIBOR rate quotes will cease on June 30, 2023, and after that date the interest accrued on floating-rate instruments that are contractually indexed to LIBOR will reset based on SOFR. Before that LIBOR cessation date, the portfolio interest-rate risk measurement process will transition from using LIBOR to using SOFR as the benchmark interest rate. This change is not expected to have a significant impact on measurement of our interest-rate risk on our financial results.
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| Fannie Mae First Quarter 2022 Form 10-Q | 57 |
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| MD&A | Risk Management | Market Risk Management, including Interest-Rate Risk Management |
We use derivatives to help manage the residual interest-rate risk exposure between ourthe assets and liabilities.liabilities in our net portfolio. Derivatives have enabled us to keep our economic interest-rate risk exposure at consistently low levels in a wide range of interest-rate environments. The table below displays an example of how derivatives impacted the net market value exposure for a 50 basis point parallel interest-rate shock.
| | Derivative Impact on Interest-Rate Risk (50 Basis Points) | Derivative Impact on Interest-Rate Risk (50 Basis Points) | Derivative Impact on Interest-Rate Risk (50 Basis Points) |
| | As of (1) | | As of (1) |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | (Dollars in millions) | | (Dollars in millions) |
| Before derivatives | Before derivatives | | $ | (899) | | | $ | (613) | | | Before derivatives | | $ | (349) | | | $ | (539) | | |
| After derivatives | After derivatives | | (1) | | | 8 | | | After derivatives | | (45) | | | (69) | | |
| Effect of derivatives | Effect of derivatives | | 898 | | | 621 | | | Effect of derivatives | | 304 | | | 470 | | |
(1)Measured on the last business day of each period presented.
Earnings Exposure to Interest-Rate Risk
While we manage the interest-rate risk of our net portfolio with the objective of remaining neutral to movements in interest rates and volatility on an economic basis, our earnings can experience volatility due to interest-rate changes and differing accounting treatments that apply to certain financial instruments on our balance sheet. Specifically, we have exposure to earnings volatility that is driven by changes in interest rates in two primary areas: our net portfolio and our consolidated MBS trusts. The exposure in the net portfolio is primarily driven by changes in the fair value of risk management derivatives, mortgage commitments, and certain assets, primarily securities, that are carried at fair value. The exposure related to our consolidated MBS trusts primarily relates to changes in our credit loss reserves driven byand to the amortization of cost basis adjustments resulting from changes in interest rates.
In January 2021, we began applyingWe apply fair value hedge accounting to address some of the exposure to interest rates, particularly the earnings volatility related to changes in benchmark interest rates, including LIBOR and SOFR. Although we expectour hedge accounting program is designed to address the earnings volatility of our financial results associated with changes in fair value related to changes in the benchmark interest rates, to continue to be meaningfully reduced as a result of our adoption of hedge accounting, earnings variability driven by other factors, such as spreads or changes in cost basis amortization recognized in net interest income, remains. In addition, whenour ability to effectively reduce earnings volatility is dependent upon the volume and type of interest-rate swaps available, which is driven by our interest-rate risk management strategy discussed above. As our range of available interest-rate swaps varies over time, our ability to reduce earnings volatility through hedge accounting may vary as well. When the shape of the yield curve shifts significantly from period to period, hedge accounting may be less effective. In our current program, we establish new hedging relationships daily to provide flexibility in our overall risk management strategy.
See “Consolidated“MD&A—Consolidated Results of Operations—Hedge Accounting Impact,”Impact” and “Note 1, Summary of Significant Accounting Policies” in our 2021 Form 10-K and “Note 8, Derivative Instruments” in this report for additional information on our fair value hedge accounting policy and related disclosures.
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Fannie Mae First Quarter 2021 Form 10-Q | 65 |
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| MD&A | Critical Accounting Policies and Estimates |
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with GAAPgenerally accepted accounting principles in the United States of America (“GAAP”) requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in our condensed consolidated financial statements. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We describe our most significant accounting policies in “Note 1, Summary of Significant Accounting Policies” in this report and in our 20202021 Form 10-K.
We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions. Management has discussed any significant changes in judgments and assumptions in applying our critical accounting estimates with the Audit Committee of our Board of Directors. See “Risk Factors” in our 2021 Form 10-K for a discussion of the risks associated with the need for management to make judgments and estimates in applying our accounting policies and methods. We have identified one of our accounting policies,estimates, allowance for loan losses, as critical because it involves significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of reasonably different estimatesjudgments and assumptions could have a material impact on our reported results of operations or financial condition.
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| Fannie Mae First Quarter 2022 Form 10-Q | 58 |
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| MD&A | Critical Accounting Estimates |
Allowance for Loan Losses
OurThe allowance for loan losses is a valuation accountan estimate of single-family and multifamily HFI loan receivables that iswe expect will not be collected related to loans held by Fannie Mae or by consolidated Fannie Mae MBS trusts. The expected credit losses are deducted from the amortized cost basis of HFI loans to present the net amount expected to be collected on the loans. received.
The allowance for loan losses reflects an estimateinvolves substantial judgment on a number of matters including the development and weighting of macroeconomic forecasts, the reversion period applied, the assessment of similar risk characteristics, which determines the historic loss experience used to derive probability of loan default, the valuation of collateral, and the determination of a loan’s remaining expected life. Our most significant judgments involved in estimating our allowance for loan losses relate to the macroeconomic data used to develop reasonable and supportable forecasts for key economic drivers, which are subject to significant inherent uncertainty. Most notably, for single-family, the model uses forecasted single-family home prices as well as a range of possible future interest rate environments, which drive prepayment speeds and impact the measurement of the economic concession provided on loans modified in a restructuring which are accounted for as a TDR. For multifamily, the model uses forecasted rental income and property valuations. For purposes of the macroeconomic sensitivities disclosed below, we have determined that our single-family home price forecast and interest rate forecast are the most significant judgments used in our estimation of credit losses for the periods presented below.
In future periods, changes in projected interest rates may not be as significant to our measurement of expected credit losses. Pursuant to our adoption of ASU 2022-02 on January 1, 2022, we prospectively discontinued TDR accounting and no longer measure the economic concession for loan modifications occurring on or after the adoption date. In addition, modifications to loans previously designated as TDRs that occur on or after January 1, 2022, will also be accounted for under the newly adopted ASU and will result in the elimination of any prior economic concession recorded in the allowance related to such loans. As a result, we expect that changes in projected interest rates will have less impact on our estimate of credit losses on single-family and multifamily HFI loans held by Fannie Mae and by consolidated Fannie Mae MBS trusts. in future periods. See "Note 1, Summary of Significant Accounting Policies—New Accounting Guidance" for more information about our adoption of ASU 2022-02.
Quantitative Component
We use a discounted cash flow method to measure expected credit losses on our single-family mortgage loans and an undiscounted loss method to measure expected credit losses on our multifamily mortgage loans. The models use reasonable and supportable forecasts for key economic drivers, such as home prices (single-family), rental income (multifamily) and capitalization rates (multifamily). macroeconomic drivers.
Our modeled loan performance is based on our historical experience of loans with similar risk characteristics adjusted to reflect current conditions and reasonable and supportable forecasts. Our historical loss experience and our creditloan loss estimates capture the possibility of a multitude of events, including remote events that could result in credit losses on loans that are considered low risk. Our credit loss models, including the macroeconomic forecast data used as key inputs, are subject to our model oversight and review processes as well as other established governance and controls.
Changes to our estimate of expected credit losses,Qualitative Component, including changes due to the passage of time, are recorded through the benefit (provision) for credit losses. When calculating our allowance for loan losses, we consider only our amortized cost in the loans at the balance sheet date. We record write-offs as a reduction to the allowance for loan losses when losses are confirmed through the receipt of assets in satisfaction of a loan, such as the underlying collateral upon foreclosure or cash upon completion of a short sale. Additionally, we record write-offs as a reduction to our allowance for loan losses when a loan is determined to be uncollectible and upon the redesignation of a nonperforming or reperforming loan from HFI to HFS. We include expected recoveries of amounts previously written off and expected to be written off in determining our allowance for loan losses.Management Adjustments
Our process for determining the measurement ofmeasuring expected credit losses for the period under the expected credit loss model is complex and involves significant management judgment, including a reliance on historical loss information and current economic forecasts that may not be representative of credit losses we ultimately realize. For example,Management adjustments may be necessary to take into consideration external factors and current macroeconomic events that have occurred but are not yet reflected in the data used to derive the model outputs. Qualitative factors and events not previously observed by the models through historical loss experience are also considered, as well as the uncertainty regardingof their impact on credit loss estimates.
Macroeconomic Variables and Sensitivities
Our credit-related income or expense can vary substantially from period to period based on forecasted macroeconomic drivers; primarily home prices and interest rates related to our single-family book of business. We develop regional forecasts for single-family home prices using a multi-path simulation that captures home price projections over a five-year period, which is the expected impactsperiod for which we can develop reasonable and supportable forecasts. After the five-year period, the home price forecast reverts to a historical long-term growth rate. Our model projects the range of possible interest rate scenarios over the life of the COVID-19 pandemic requiredloan. This process captures multiple possible outcomes of what could be more or less favorable economic environments for the borrower, and therefore will increase or decrease the likelihood of default or prepayment depending on the environment in each path of the simulation.
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| Fannie Mae First Quarter 2022 Form 10-Q | 59 |
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| MD&A | Critical Accounting Estimates |
The table below provides information about our most significant key macroeconomic inputs used in determining our single-family allowance for loan losses: forecasted home price growth rates and interest rates. Although the model consumes a wide range of possible regional home price forecasts and interest rate scenarios that take into account inherent uncertainty, the forecasts below represent the mean path of those simulations used in determining the allowance for the quarter ended March 31, 2022 and for each quarter during the year ended December 31, 2021, and how those forecasts have changed between periods of estimate. Below we present the two succeeding periods used in our estimate of expected credit losses. The forecasts consider periods beyond those presented below.
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Select Single-Family Macroeconomic Model Inputs(1) | | | | | | | |
| | | | | | | |
Forecasted home price growth rate by period of estimate:(2) | | | | | | |
| For the Full Year ending December 31, | | |
| 2022 | | 2023 | | 2024 | | |
| First Quarter 2022 | 10.8 | % | | 3.2 | % | | 1.3 | % | | |
| | | | | | | |
| For the Full Year ending December 31, | | |
| 2021 | | 2022 | | 2023 | | |
| Fourth Quarter 2021 | 18.8 | % | | 8.2 | % | | 2.9 | % | | |
| Third Quarter 2021 | 18.4 | | | 7.9 | | | 2.4 | | | |
| Second Quarter 2021 | 14.8 | | | 5.4 | | | 2.5 | | | |
| First Quarter 2021 | 8.8 | | | 2.5 | | | 1.7 | | | |
| | | | | | | |
Forecasted 30-year interest rates by period of estimate:(3) | | | | | | |
| Through the end of December 31, | | For the Full Year ending
December 31, | | |
| 2022 | | 2023 | | 2024 | | |
| First Quarter 2022 | 4.7 | % | | 4.8 | % | | 4.7 | % | | |
| | | | | | | |
| Through the end of December 31, | | For the Full Year ending
December 31, | | |
| 2021 | | 2022 | | 2023 | | |
| Fourth Quarter 2021 | 3.2 | % | | 3.5 | % | | 3.7 | % | | |
| Third Quarter 2021 | 3.1 | | | 3.4 | | | 3.7 | | | |
| Second Quarter 2021 | 3.1 | | | 3.4 | | | 3.6 | | | |
| First Quarter 2021 | 3.1 | | | 3.3 | | | 3.6 | | | |
(1) These forecasts are provided here solely for the purpose of providing insight into our credit loss model. Forecasts for future periods are subject to significant uncertainty, which increases for periods that are further in the future. We provide our most recent forecasts for certain macroeconomic and housing market conditions in “Key Market Economic Indicators.” In addition, each month our Economic & Strategic Research group provides its forecast of economic and housing market conditions, which are available in the “Research and Insights” section of our website, www.fanniemae.com.
(2) These estimates are based on our national home price index, which is calculated differently from the S&P/Case-Shiller U.S. National Home Price Index and therefore results in different percentages for comparable growth. We continually update our home price growth estimates and forecasts as new data become available. As a result, the forecast data in this table may also differ from the forecasted home price growth rate presented in “Key Market Economic Indicators,” because that section reflects our most recent forecast as of the filing date of this report, while this table reflects the forecast data we used in estimating credit losses for the periods shown. Management continues to monitor macroeconomic updates to our inputs in our credit loss model from the time they are approved as part of our established governance process, through the date of filing, to ensure the reasonableness of the inputs used to calculate estimated credit losses.
(3) Forecasted 30-year interest rates represent the mean of possible future interest rate environments that are simulated by our interest rate model and used in the estimation of credit losses. Through the year ended 2021, forecasts represent the average forecasted rate from the quarter-end through the end of December 31, 2021. The fourth quarter of 2021 interest rate represents the 30-year interest rate as of December 31, 2021. This table reflects the forecasted interest rate data we used in estimating credit losses for the periods shown and does not reflect changes in interest rates that occurred after the forecast date. See “Key Market Economic Indicators” for information on increases in actual interest rates that occurred after the forecast date.
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| Fannie Mae First Quarter 2022 Form 10-Q | 60 |
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| MD&A | Critical Accounting Estimates |
It is difficult to estimate how potential changes in any one factor or input might affect the overall credit loss estimates, because management judgmentconsiders a wide variety of factors and inputs in assessingestimating the allowance for loan losses. Changes in the factors and inputs considered may not occur at the same rate and may not be consistent across all geographies or loan types, and changes in factors and inputs may be directionally inconsistent, such that improvement in one factor or input may offset deterioration in others. Changes in our assumptions and forecasts of economic conditions could significantly affect our estimate of expected credit losses and lead to significant changes in the estimate from one reporting period to the next.
As noted above, our allowance for loan losses is sensitive to changes in home prices and interest rate changes. To consider the impact of a hypothetical change in home price appreciation, assuming a one-percent increase in the home price growth rate for the first twelve months of the forecast, on a normalized basis, with all other factors held constant, the single-family allowance for loan losses as of March 31, 2021.2022 would decrease by approximately 3%. Conversely, assuming a one-percent decrease in the home price growth rate for the first twelve months of the forecast, on a normalized basis, the single-family allowance for loan losses would increase by approximately 3%.
To consider the impact of a hypothetical change in 30-year interest rates, assuming a 50-basis point increase in estimated 30-year interest rates, with all other factors held constant, the single-family allowance for loan losses as of March 31, 2022 would increase by approximately 4%. Conversely, assuming a 50-basis point decrease in 30-year interest rates, the single-family allowance for loan losses would decrease by approximately 5%.
These sensitivity analyses are hypothetical and are provided solely for the purpose of providing insight into our credit loss model inputs. In addition, sensitivities for home price and interest rate changes are non-linear. As a result, changes in these estimates are not incrementally proportional. The purpose of this analysis is to provide an indication of the impact of home price appreciation and 30-year interest rates on the estimate of the allowance for credit losses. For example, it is not intended to imply management’s expectation of future changes in our forecasts or any other variables that may change as a result. We provide our most recent forecasts for certain macroeconomic and housing market conditions in “Key Market Economic Indicators.” In addition, each month our Economic & Strategic Research group provides its forecast of economic and housing market conditions, which are available in the “Research and Insights” section of our website, www.fanniemae.com. See “Key Market Economic Indicators” for information on increases in actual interest rates that occurred after the forecast date.
We provide more detailed information on our accounting for the allowance for loan losses in “Note 1, Summary of Significant Accounting Policies” in our 20202021 Form 10-K. See “Note 4, Allowance for Loan Losses” in this report for additional information about our current-periodcurrent period benefit or provision(provision) for loan losses,losses.
See “Key Market Economic Indicators” for additional information about how home prices can affect our credit loss estimates, including a discussion of the estimates used in measuring the impacthome price appreciation and our home price forecast. Also see “Consolidated Results of the COVID-19 pandemicOperations—Credit-Related Income (Expense)” for information on how our allowance. See “Risk Factors” inhome price forecast impacted our 2020 Form 10-Ksingle-family benefit (provision) for a discussion of the risks associated with the need for management to make judgments and estimates in applying our accounting policies and methods.credit losses.
Impact of Future Adoption of New Accounting Guidance
We identify and discuss the expected impact on our condensed consolidated financial statements of recently issued accounting guidance if any, in “Note 1, Summary of Significant Accounting Policies.” No applicable guidance was identified during the first quarter of 2021.
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Fannie Mae First Quarter 2021 Form 10-Q | 66 |
| | | | | | | | |
| MD&A | Forward-Looking Statements |
Forward-Looking Statements
This report includes statements that constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). In addition, we and our senior management may from time to time make forward-looking statements in our other filings with the SEC, our other publicly available written statements, and orally to analysts, investors, the news media and others. Forward-looking statements often include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “forecast,” “project,” “would,” “should,” “could,” “likely,” “may,” “will” or similar words. Examples of forward-looking statements in this report include, among others, statements relating to our expectations regarding the following matters:
•our future financial performance financial condition and net worth, and the factors that will affect them, including oursuch performance;
•economic, mortgage market and housing market conditions (including expectations regarding economic growth, home price growth, refinance volumes and interest rates), the factors that will affect those conditions, and the impact of those conditions on our future net revenuesbusiness and amortization income;financial results;
•our expectations regarding our business plans and strategies and their impact, including plans to become well capitalized;impact;
| | | | | | | | |
| Fannie Mae First Quarter 2022 Form 10-Q | 61 |
| | | | | | | | |
| MD&A | Forward-Looking Statements |
•
our expectations for, and the impact of fluctuations in, our acquisition volumes, market share, guaranty fees, acquisition credit characteristics; or the pace at which loans in our book of business turn over;
•our plans relating to and the effects of our credit risk transfer transactions, as well as the factors that will affect our engagement in future transactions;
•volatility in our expectations for economic and mortgage market conditions, the factors that will affect conditions,financial results and the impact of those conditions on our business and financial results;
•our expectations regarding the impactadoption of actions that we and federal, state and local governments are taking in response to the COVID-19 pandemic and the pandemic’s economic impact, and our expectations regarding the impact of those actions on our business, financial results, financial condition and business plans, and on mortgage market and economic conditions;
•our loss mitigation activity and its impact;
•the impact on our business of the CFPB’s final rule eliminating the qualified mortgage patch and the related requirement in our senior preferred stock purchase agreement with Treasury;
•volatility in our future financial results and our expectations relating to our hedge accounting program and its impact;on such volatility;
•the size and composition of our retained mortgage portfolio;
•the amount and timing of our purchases of loans from MBS trusts;
•the impact on our business or financial results andof the timingadoption of legislation and regulation;new accounting guidance;
•our payments to HUD and Treasury funds under the GSE Act;
•our future off-balance sheet exposure to Freddie Mac-issued securities;
•the risks to our business;
•future delinquency rates, default rates, forbearances, and other loss mitigation activity,modifications, foreclosures, and credit losseswrite-offs relating to the loans in our guaranty book of business and the factors that will affect them, including the impact of the COVID-19 pandemic;
•our expectations relating to our TDRs;
•the performance of loans in our book of business, including loans in forbearance, and the factors that will affect such performance;
•our loan acquisitions, the credit risk profile of such acquisitions, and the factors that will affect them;
•our future liquidity, liquidity requirements, the amount of our outstanding debt, and expectations for how we willintend to meet our debt obligations; and
•our response to legal and regulatory proceedings and their impact on our business or financial condition.
Forward-looking statements reflect our management’s current 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 and that otherwise impact our business plans. Forward-looking statements are not guarantees of future performance. By their nature, forward-looking statements are subject to significant risks and uncertainties and changes in circumstances. Our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements.
| | | | | | | | |
Fannie Mae First Quarter 2021 Form 10-Q | 67 |
| | | | | | | | |
| MD&A | Forward-Looking Statements |
There are a number of factors that could cause actual conditions, events or results to differ materially from those described in our forward-looking statements, including, among others, the following:
•uncertainty regarding our future, our exit from conservatorship and our ability to raise or earn the capital needed to meet our capital requirements;
•uncertainty surrounding significant challenges we face in retaining and hiring qualified executives and other employees;
•the duration, spread and severity of the COVID-19 pandemic; the actions taken to contain the virus or treat its impact, including government actions to mitigate the economic impact of the pandemic and COVID-19 vaccination rates; the widespread availabilityeffectiveness of available COVID-19 vaccines over time and public acceptanceagainst variants of COVID-19 vaccines; the extent to which consumers, workers and families feel safe resuming pre-pandemic activities;coronavirus; the nature, extent and success of the forbearance, payment deferrals, modifications and other loss mitigation options we provide to borrowers affected by the pandemic; accounting elections and estimates relating to the impact of the COVID-19 pandemic; borrower and renter behavior in response to the pandemic and its economic impact; how quickly andthe extent to what extent normal economic and operating conditions can resume, including whetherwhich any future outbreaks or increases in the daily number of new COVID-19 cases interruptaffect economic recovery;growth; and how quickly and to what extent affected borrowers, renters and counterparties can recover from the negative economic impact of the pandemic;
•the market and regulatory changes we anticipate and our readiness for them, including changes relating to an eventual exit from conservatorship, the competitive landscape, and the need to attract private investment;
•the impact of the senior preferred stock purchase agreement and the enterprise regulatory capital framework, as well as future legislative and regulatory requirements or changes, governmental initiatives, or executive orders affecting us, such as the enactment of housing finance reform legislation, including changes that limit our business activities or our footprint;footprint or impose new mandates on us;
•actions by FHFA, Treasury, HUD, the CFPB or other regulators, Congress, the Executive Branch, or state or local governments that affect our business, including our new capital requirements and recent changes or potential further changes in the ability-to-repay rule that eliminates the qualified mortgage patch for GSE-eligible loans;business;
•changes in the structure and regulation of the financial services industry;
•the potential impact of a change in the corporate income tax rate, which we expect would affect our capital requirements and net income in the quarter of enactment as a result of changesa change in the valueour measurement of our deferred tax assets and our net income in subsequent quarters as a result of the change in our effective federal income tax rate;
•the timing and level of, as well as regional variation in, home price changes;
•future interest rates and credit spreads;
•developments that may be difficult to predict, including: market conditions that result in changes in our net amortization income from our guaranty book of business, fluctuations in the estimated fair value of our derivatives and other financial instruments that we mark to market through our earnings; and developments that
| | | | | | | | |
| Fannie Mae First Quarter 2022 Form 10-Q | 62 |
| | | | | | | | |
| MD&A | Forward-Looking Statements |
affect our loss reserves, such as changes in interest rates, home prices or accounting standards, or events such as natural or other disasters, or the emergence of widespread health emergencies or pandemics;pandemics, or other disruptive or catastrophic events;
•uncertainties relating to the discontinuance of LIBOR, or other market changes that could impact the loans we own or guarantee or our MBS;
•credit availability;
•disruptions or instability in the housing and credit markets;
•the size and our share of the U.S. mortgage market and the factors that affect them, including population growth and household formation;
•growth, deterioration and the overall health and stability of the U.S. economy, including U.S. GDP, unemployment rates, personal income, inflation and other indicators thereof;
•changes in the fiscal andor monetary policies of the Federal Reserve;policy;
•our and our competitors’ future guaranty fee pricing and the impact of that pricing on our competitive environment and guaranty fee revenues;
•the volume of mortgage originations;
•the size, composition, quality and performance of our guaranty book of business and retained mortgage portfolio;
•the competitive environment in which we operate, including the impact of legislative, regulatory or other developments on levels of competition in our industry and other factors affecting our market share;
| | | | | | | | |
Fannie Mae First Quarter 2021 Form 10-Q | 68 |
| | | | | | | | |
| MD&A | Forward-Looking Statements |
•how long loans in our guaranty book of business remain outstanding;
•challenges we face in retaining and hiring qualified executives and other employees;
•the effectiveness of our business resiliency plans and systems;
•changes in the demand for Fannie Mae MBS, in general or from one or more major groups of investors;
•our conservatorship, including any changes to or termination (by receivership or otherwise) of the conservatorship and its effect on our business;
•the investment by Treasury, including the impact of recent changespast or potential future changes to the terms of the senior preferred stock purchase agreement, and itstheir effect on our business, including restrictions imposed on us by the terms of the senior preferred stock purchase agreement, the senior preferred stock, and Treasury’sthe warrant, as well as the extent that these or other restrictions on our business and activities are applied to us through other mechanisms even if we cease to be subject to these agreements and instruments;
•adverse effects from activities we undertake to support the mortgage market and help borrowers, renters, lenders and servicers;
•actions we may be required to take by FHFA, in its role as our conservator or as our regulator, such as actions in response to the COVID-19 pandemic, changes in the type of business we do, or actions relating to UMBS or our resecuritization of Freddie Mac-issued securities;
•limitations on our business imposed by FHFA, in its role as our conservator or as our regulator;
•our current and future objectives and activities in support of those objectives, including actions we may take to reach additional underserved creditworthy borrowers;borrowers or address barriers to sustainable housing opportunities and advance equity in housing finance;
•the possibility that changes in leadership at FHFA or the Administration may result in changes in FHFA’sthat affect our company or Treasury’s willingness to pursue our exit from conservatorship;business;
•our reliance on Common Securitization Solutions, LLC (“CSS”) and the common securitization platform for a majority of our single-family securitization activities, our reduced influence over CSS as a result of recent changes made in 2020 to the CSS limited liability company agreement, and Board, and any additional changes FHFA may require in our relationship with or in our support of CSS;
•a decrease in our credit ratings;
•limitations on our ability to access the debt capital markets;
•constraints on our entry into new credit risk transfer transactions;
•significant changes in forbearance, modification and foreclosure activity;
•the volume and pace of future nonperforming and reperforming loan sales and their impact on our results and serious delinquency rates;
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| Fannie Mae First Quarter 2022 Form 10-Q | 63 |
| | | | | | | | |
| MD&A | Forward-Looking Statements |
•changes in borrower behavior;
•actions we may take to mitigate losses, and the effectiveness of our loss mitigation strategies, management of our REO inventory and pursuit of contractual remedies;
•defaults by one or more institutional counterparties;
•resolution or settlement agreements we may enter into with our counterparties;
•our need to rely on third parties to fully achieve some of our corporate objectives;
•our reliance on mortgage servicers;
•changes in GAAP, guidance by the Financial Accounting Standards Board and changes to our accounting policies;
•changes in the fair value of our assets and liabilities;
•the stability and adequacy of the systems and infrastructure that impact our operations, including ours and those of CSS, our other counterparties and other third parties;
•the impact of increasing interdependence between the single-family mortgage securitization programs of Fannie Mae and Freddie Mac in connection with UMBS;
•operational control weaknesses;
•our reliance on models and future updates we make to our models, including the assumptions used by these models;
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Fannie Mae First Quarter 2021 Form 10-Q | 69 |
| | | | | | | | |
| MD&A | Forward-Looking Statements |
•domestic and global political risks and uncertainties;uncertainties, including the impact of the Russian invasion of Ukraine and the potential expansion of military hostilities;
•natural disasters, environmental disasters, terrorist attacks, widespread health emergencies or pandemics, infrastructure failures, or other major disruptive or catastrophic events;
•severe weather events, fires, floods or other climate change events or impacts, including those for which we may be uninsured or under-insured or that may affect our counterparties, and other risks resulting from climate change and efforts to address climate change;change and related risks;
•cyber attacks or other information security breaches or threats; and
•the other factors described in “Risk Factors” in this report and in our 20202021 Form 10-K.
Readers are cautioned not to unduly rely on the forward-looking statements we make and to place these forward-looking statements into proper context by carefully considering the factors discussed in “Risk Factors” in our 20202021 Form 10-K and in this report. These forward-looking statements are representative only as of the date they are made, and we undertake no obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under the federal securities laws.
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Fannie Mae First Quarter 20212022 Form 10-Q | 7064 |
| | | | | | | | |
| Financial Statements | Condensed Consolidated Balance Sheets |
Item 1. Financial Statements
FANNIE MAE
(In conservatorship)
Condensed Consolidated Balance Sheets — (Unaudited)
(Dollars in millions)
| | | As of | | As of |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | ASSETS | ASSETS | ASSETS | | | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 26,538 | | | $ | 38,337 | | | Cash and cash equivalents | | $ | 36,330 | | | $ | 42,448 | | |
| Restricted cash and cash equivalents (includes $80,899 and $68,308, respectively, related to consolidated trusts) | | 87,803 | | | 77,286 | | | |
| Federal funds sold and securities purchased under agreements to resell or similar arrangements (includes $40,837 and $0, respectively, related to consolidated trusts) | | 54,937 | | | 28,200 | | | |
| Restricted cash and cash equivalents (includes $46,317 and $59,203, respectively, related to consolidated trusts) | | Restricted cash and cash equivalents (includes $46,317 and $59,203, respectively, related to consolidated trusts) | | 52,651 | | | 66,183 | | |
| Securities purchased under agreements to resell or similar arrangements (includes $9,707 and $13,533, respectively, related to consolidated trusts) | | Securities purchased under agreements to resell or similar arrangements (includes $9,707 and $13,533, respectively, related to consolidated trusts) | | 17,907 | | | 20,743 | | |
| Investments in securities: | Investments in securities: | | Investments in securities: | |
| Trading, at fair value (includes $6,658 and $6,544, respectively, pledged as collateral) | | 111,256 | | | 136,542 | | | |
| Available-for-sale, at fair value (with an amortized cost of $1,440 and $1,606, net of allowance for credit losses of $3 as of March 31, 2021 and December 31, 2020) | | 1,502 | | | 1,697 | | | |
| Trading, at fair value (includes $2,891 and $4,224, respectively, pledged as collateral) | | Trading, at fair value (includes $2,891 and $4,224, respectively, pledged as collateral) | | 84,629 | | | 88,206 | | |
| Available-for-sale, at fair value (with an amortized cost of $802 and $827, respectively) | | Available-for-sale, at fair value (with an amortized cost of $802 and $827, respectively) | | 806 | | | 837 | | |
| Total investments in securities | Total investments in securities | | 112,758 | | | 138,239 | | | Total investments in securities | | 85,435 | | | 89,043 | | |
| Mortgage loans: | Mortgage loans: | | | | | | Mortgage loans: | | | | | |
| Loans held for sale, at lower of cost or fair value | Loans held for sale, at lower of cost or fair value | | 7,824 | | | 5,197 | | | Loans held for sale, at lower of cost or fair value | | 5,920 | | | 5,134 | | |
| Loans held for investment, at amortized cost: | Loans held for investment, at amortized cost: | | Loans held for investment, at amortized cost: | |
| Of Fannie Mae | Of Fannie Mae | | 103,310 | | | 112,726 | | | Of Fannie Mae | | 60,297 | | | 61,025 | | |
| Of consolidated trusts | Of consolidated trusts | | 3,638,374 | | | 3,546,521 | | | Of consolidated trusts | | 3,990,220 | | | 3,907,712 | | |
| Total loans held for investment (includes $6,048 and $6,490, respectively, at fair value) | | 3,741,684 | | | 3,659,247 | | | |
| Total loans held for investment (includes $4,492 and $4,964, respectively, at fair value) | | Total loans held for investment (includes $4,492 and $4,964, respectively, at fair value) | | 4,050,517 | | | 3,968,737 | | |
| Allowance for loan losses | Allowance for loan losses | | (9,628) | | | (10,552) | | | Allowance for loan losses | | (5,899) | | | (5,629) | | |
| Total loans held for investment, net of allowance | Total loans held for investment, net of allowance | | 3,732,056 | | | 3,648,695 | | | Total loans held for investment, net of allowance | | 4,044,618 | | | 3,963,108 | | |
| Total mortgage loans | Total mortgage loans | | 3,739,880 | | | 3,653,892 | | | Total mortgage loans | | 4,050,538 | | | 3,968,242 | | |
| Advances to lenders | Advances to lenders | | 10,572 | | | 10,449 | | | Advances to lenders | | 5,977 | | | 8,414 | | |
| Deferred tax assets, net | Deferred tax assets, net | | 12,516 | | | 12,947 | | | Deferred tax assets, net | | 13,075 | | | 12,715 | | |
| Accrued interest receivable, net (includes $9,732 and $9,635, respectively, related to consolidated trusts and net of allowance of $226 and $216 as of March 31, 2021 and December 31, 2020, respectively) | | 9,993 | | | 9,937 | | | |
| Accrued interest receivable, net (includes $8,824 and $8,878 related to consolidated trusts and net of allowance of $128 and $140, respectively) | | Accrued interest receivable, net (includes $8,824 and $8,878 related to consolidated trusts and net of allowance of $128 and $140, respectively) | | 9,383 | | | 9,264 | | |
| Acquired property, net | Acquired property, net | | 1,183 | | | 1,261 | | | Acquired property, net | | 1,456 | | | 1,259 | | |
| Other assets | Other assets | | 13,923 | | | 15,201 | | | Other assets | | 12,277 | | | 10,855 | | |
| Total assets | Total assets | | $ | 4,070,103 | | | $ | 3,985,749 | | | Total assets | | $ | 4,285,029 | | | $ | 4,229,166 | | |
| LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | | | | | |
| Liabilities: | Liabilities: | | Liabilities: | |
| Accrued interest payable (includes $8,768 and $8,955, respectively, related to consolidated trusts) | | $ | 9,585 | | | $ | 9,719 | | | |
| Accrued interest payable (includes $8,598 and $8,517, respectively, related to consolidated trusts) | | Accrued interest payable (includes $8,598 and $8,517, respectively, related to consolidated trusts) | | $ | 9,270 | | | $ | 9,186 | | |
| Debt: | Debt: | | Debt: | |
| Of Fannie Mae (includes $3,336 and $3,728, respectively, at fair value) | | 273,442 | | | 289,572 | | | |
| Of consolidated trusts (includes $23,601 and $24,586, respectively, at fair value) | | 3,740,538 | | | 3,646,164 | | | |
| Other liabilities (includes $1,375 and $1,523, respectively, related to consolidated trusts) | | 16,313 | | | 15,035 | | | |
| Of Fannie Mae (includes $2,091 and $2,381, respectively, at fair value) | | Of Fannie Mae (includes $2,091 and $2,381, respectively, at fair value) | | 180,169 | | | 200,892 | | |
| Of consolidated trusts (includes $20,117 and $21,735, respectively, at fair value) | | Of consolidated trusts (includes $20,117 and $21,735, respectively, at fair value) | | 4,028,628 | | | 3,957,299 | | |
| Other liabilities (includes $2,119 and $1,245, respectively, related to consolidated trusts) | | Other liabilities (includes $2,119 and $1,245, respectively, related to consolidated trusts) | | 15,204 | | | 14,432 | | |
| Total liabilities | Total liabilities | | 4,039,878 | | | 3,960,490 | | | Total liabilities | | 4,233,271 | | | 4,181,809 | | |
| Commitments and contingencies (Note 13) | Commitments and contingencies (Note 13) | | 0 | | | 0 | | | Commitments and contingencies (Note 13) | | — | | | — | | |
| Fannie Mae stockholders’ equity: | Fannie Mae stockholders’ equity: | | Fannie Mae stockholders’ equity: | |
| Senior preferred stock (liquidation preference of $146,758 and $142,192, respectively) | | 120,836 | | | 120,836 | | | |
| Senior preferred stock (liquidation preference of $168,856 and $163,672, respectively) | | Senior preferred stock (liquidation preference of $168,856 and $163,672, respectively) | | 120,836 | | | 120,836 | | |
| Preferred stock, 700,000,000 shares are authorized—555,374,922 shares issued and outstanding | Preferred stock, 700,000,000 shares are authorized—555,374,922 shares issued and outstanding | | 19,130 | | | 19,130 | | | 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 and 1,158,087,567 shares outstanding | Common stock, no par value, no maximum authorization—1,308,762,703 shares issued and 1,158,087,567 shares outstanding | | 687 | | | 687 | | | Common stock, no par value, no maximum authorization—1,308,762,703 shares issued and 1,158,087,567 shares outstanding | | 687 | | | 687 | | |
| Accumulated deficit | Accumulated deficit | | (103,117) | | | (108,110) | | | Accumulated deficit | | (81,526) | | | (85,934) | | |
| Accumulated other comprehensive income | Accumulated other comprehensive income | | 89 | | | 116 | | | Accumulated other comprehensive income | | 31 | | | 38 | | |
| Treasury stock, at cost, 150,675,136 shares | Treasury stock, at cost, 150,675,136 shares | | (7,400) | | | (7,400) | | | Treasury stock, at cost, 150,675,136 shares | | (7,400) | | | (7,400) | | |
| Total stockholders’ equity (See Note 1: Senior Preferred Stock Purchase Agreement and Senior Preferred Stock for information on the related dividend obligation and liquidation preference) | Total stockholders’ equity (See Note 1: Senior Preferred Stock Purchase Agreement and Senior Preferred Stock for information on the related dividend obligation and liquidation preference) | | 30,225 | | | 25,259 | | | Total stockholders’ equity (See Note 1: Senior Preferred Stock Purchase Agreement and Senior Preferred Stock for information on the related dividend obligation and liquidation preference) | | 51,758 | | | 47,357 | | |
| Total liabilities and equity | Total liabilities and equity | | $ | 4,070,103 | | | $ | 3,985,749 | | | Total liabilities and equity | | $ | 4,285,029 | | | $ | 4,229,166 | | |
See Notes to Condensed Consolidated Financial Statements
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 7165 |
| | | | | | | | |
| Financial Statements | Condensed Consolidated Statements of Operations and Comprehensive Income |
FANNIE MAE
(In conservatorship)
Condensed Consolidated Statements of Operations and Comprehensive Income — (Unaudited)
(Dollars and shares in millions, except per share amounts)
| | | | For the Three Months Ended March 31, | | | For the Three Months Ended March 31, |
| | | For the Three Months Ended March 31, | | For the Three Months Ended March 31, |
| | | 2021 | | 2020 | | | 2022 | | 2021 |
| Interest income: | Interest income: | | | | | | Interest income: | | | | |
| Trading securities | Trading securities | | | $ | 140 | | | $ | 316 | | Trading securities | | | $ | 156 | | | $ | 140 | |
| Available-for-sale securities | Available-for-sale securities | | | 19 | | | 31 | | Available-for-sale securities | | | 10 | | | 19 | |
| Mortgage loans | Mortgage loans | | | 23,353 | | | 28,938 | | Mortgage loans | | | 27,142 | | | 23,353 | |
| Federal funds sold and securities purchased under agreements to resell or similar arrangements | | | 8 | | | 107 | | |
| Securities purchased under agreements to resell or similar arrangements | | Securities purchased under agreements to resell or similar arrangements | | | 6 | | | 8 | |
| Other | Other | | | 42 | | | 34 | | Other | | | 26 | | | 42 | |
| Total interest income | Total interest income | | | 23,562 | | | 29,426 | | Total interest income | | | 27,340 | | | 23,562 | |
| Interest expense: | Interest expense: | | | | | | Interest expense: | | | | | |
| Short-term debt | Short-term debt | | | (3) | | | (102) | | Short-term debt | | | (1) | | | (3) | |
| Long-term debt | Long-term debt | | | (16,817) | | | (23,977) | | Long-term debt | | | (19,940) | | | (16,817) | |
| Total interest expense | Total interest expense | | | (16,820) | | | (24,079) | | Total interest expense | | | (19,941) | | | (16,820) | |
| Net interest income | Net interest income | | | 6,742 | | | 5,347 | | Net interest income | | | 7,399 | | | 6,742 | |
| Benefit (provision) for credit losses | Benefit (provision) for credit losses | | | 765 | | | (2,583) | | Benefit (provision) for credit losses | | | (240) | | | 765 | |
| Net interest income after benefit (provision) for credit losses | Net interest income after benefit (provision) for credit losses | | | 7,507 | | | 2,764 | | Net interest income after benefit (provision) for credit losses | | | 7,159 | | | 7,507 | |
| Investment gains (losses), net | Investment gains (losses), net | | | 45 | | | (158) | | Investment gains (losses), net | | | (102) | | | 45 | |
| Fair value gains (losses), net | | | 784 | | | (276) | | |
| Fair value gains, net | | Fair value gains, net | | | 480 | | | 784 | |
| Fee and other income | Fee and other income | | | 87 | | | 120 | | Fee and other income | | | 83 | | | 87 | |
| Non-interest income (loss) | | | 916 | | | (314) | | |
| Non-interest income | | Non-interest income | | | 461 | | | 916 | |
| Administrative expenses: | Administrative expenses: | | | | | | Administrative expenses: | | | | | |
| Salaries and employee benefits | Salaries and employee benefits | | | (387) | | | (393) | | Salaries and employee benefits | | | (407) | | | (387) | |
| Professional services | Professional services | | | (214) | | | (212) | | Professional services | | | (209) | | | (214) | |
| | Other administrative expenses | Other administrative expenses | | | (147) | | | (144) | | Other administrative expenses | | | (192) | | | (147) | |
| Total administrative expenses | Total administrative expenses | | | (748) | | | (749) | | Total administrative expenses | | | (808) | | | (748) | |
| Foreclosed property income (expense) | | | 5 | | | (80) | | |
| Foreclosed property income | | Foreclosed property income | | | 39 | | | 5 | |
| Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees | Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees | | | (731) | | | (637) | | Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees | | | (824) | | | (731) | |
| Credit enhancement expense | Credit enhancement expense | | | (284) | | | (376) | | Credit enhancement expense | | | (278) | | | (284) | |
| Change in expected credit enhancement recoveries | Change in expected credit enhancement recoveries | | | (31) | | | 188 | | Change in expected credit enhancement recoveries | | | 60 | | | (31) | |
| Other expenses, net | Other expenses, net | | | (319) | | | (218) | | Other expenses, net | | | (236) | | | (319) | |
| Total expenses | Total expenses | | | (2,108) | | | (1,872) | | Total expenses | | | (2,047) | | | (2,108) | |
| Income before federal income taxes | Income before federal income taxes | | | 6,315 | | | 578 | | Income before federal income taxes | | | 5,573 | | | 6,315 | |
| Provision for federal income taxes | Provision for federal income taxes | | | (1,322) | | | (117) | | Provision for federal income taxes | | | (1,165) | | | (1,322) | |
| Net income | Net income | | | 4,993 | | | 461 | | Net income | | | 4,408 | | | 4,993 | |
| Other comprehensive income (loss): | | | |
| Changes in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustments and taxes | | | (23) | | | 18 | | |
| Other comprehensive loss: | | Other comprehensive loss: | | |
| Changes in unrealized losses on available-for-sale securities, net of reclassification adjustments and taxes | | Changes in unrealized losses on available-for-sale securities, net of reclassification adjustments and taxes | | | (5) | | | (23) | |
| Other, net of taxes | Other, net of taxes | | | (4) | | | (3) | | Other, net of taxes | | | (2) | | | (4) | |
| Total other comprehensive income (loss) | | | (27) | | | 15 | | |
| Total other comprehensive loss | | Total other comprehensive loss | | | (7) | | | (27) | |
| Total comprehensive income | Total comprehensive income | | | $ | 4,966 | | | $ | 476 | | Total comprehensive income | | | $ | 4,401 | | | $ | 4,966 | |
| Net income | Net income | | | $ | 4,993 | | | $ | 461 | | Net income | | | $ | 4,408 | | | $ | 4,993 | |
| Dividends distributed or amounts attributable to senior preferred stock | Dividends distributed or amounts attributable to senior preferred stock | | | (4,966) | | | (476) | | Dividends distributed or amounts attributable to senior preferred stock | | | (4,401) | | | (4,966) | |
| Net income (loss) attributable to common stockholders | | | $ | 27 | | | $ | (15) | | |
| Net income attributable to common stockholders | | Net income attributable to common stockholders | | | $ | 7 | | | $ | 27 | |
| Earnings per share: | Earnings per share: | | | | | | Earnings per share: | | | | | |
| Basic | Basic | | | $ | 0.00 | | | $ | 0.00 | | Basic | | | $ | 0.00 | | | $ | 0.00 | |
| Diluted | Diluted | | | 0.00 | | | 0.00 | | Diluted | | | 0.00 | | | 0.00 | |
| Weighted-average common shares outstanding: | Weighted-average common shares outstanding: | | | Weighted-average common shares outstanding: | | |
| Basic | Basic | | | 5,867 | | | 5,867 | | Basic | | | 5,867 | | | 5,867 | |
| Diluted | Diluted | | | 5,893 | | | 5,867 | | Diluted | | | 5,893 | | | 5,893 | |
See Notes to Condensed Consolidated Financial Statements
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 7266 |
| | | | | | | | |
| Financial Statements | Condensed Consolidated Statements of Cash Flows |
FANNIE MAE
(In conservatorship)
Condensed Consolidated Statements of Cash Flows — (Unaudited)
(Dollars in millions)
| | | For the Three Months Ended March 31, | | For the Three Months Ended March 31, |
| | 2021 | | 2020 | | 2022 | | 2021 |
| Net cash provided by operating activities | Net cash provided by operating activities | | $ | 24,883 | | | | | $ | 2,174 | | | Net cash provided by operating activities | | $ | 3,358 | | | | | $ | 24,883 | | |
| Cash flows provided by (used in) investing activities: | Cash flows provided by (used in) investing activities: | | Cash flows provided by (used in) investing activities: | |
| Proceeds from maturities and paydowns of trading securities held for investment | | 13 | | | 13 | | | |
| Proceeds from sales of trading securities held for investment | | 97 | | | 0 | | | |
| Proceeds from maturities and paydowns of available-for-sale securities | | 69 | | | 96 | | | |
| Proceeds from sales of available-for-sale securities | | 115 | | | 50 | | | |
| | Purchases of loans held for investment | Purchases of loans held for investment | | (214,402) | | | (86,307) | | | Purchases of loans held for investment | | (95,844) | | | (214,402) | | |
| Proceeds from repayments of loans acquired as held for investment of Fannie Mae | Proceeds from repayments of loans acquired as held for investment of Fannie Mae | | 2,889 | | | 2,308 | | | Proceeds from repayments of loans acquired as held for investment of Fannie Mae | | 2,307 | | | 2,889 | | |
| | Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts | Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts | | 337,028 | | | 169,656 | | | Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts | | 163,244 | | | 337,028 | | |
| Advances to lenders | Advances to lenders | | (114,805) | | | (45,248) | | | Advances to lenders | | (68,231) | | | (114,805) | | |
| Proceeds from disposition of acquired property and preforeclosure sales | Proceeds from disposition of acquired property and preforeclosure sales | | 1,064 | | | 1,832 | | | Proceeds from disposition of acquired property and preforeclosure sales | | 701 | | | 1,064 | | |
| Net change in federal funds sold and securities purchased under agreements to resell or similar arrangements | Net change in federal funds sold and securities purchased under agreements to resell or similar arrangements | | (26,737) | | | 5,803 | | | Net change in federal funds sold and securities purchased under agreements to resell or similar arrangements | | 2,836 | | | (26,737) | | |
| Other, net | Other, net | | 228 | | | (539) | | | Other, net | | (691) | | | 522 | | |
| Net cash provided by (used in) investing activities | Net cash provided by (used in) investing activities | | (14,441) | | | 47,664 | | | Net cash provided by (used in) investing activities | | 4,322 | | | (14,441) | | |
| Cash flows provided by (used in) financing activities: | Cash flows provided by (used in) financing activities: | | | | | | Cash flows provided by (used in) financing activities: | | | | | |
| Proceeds from issuance of debt of Fannie Mae | Proceeds from issuance of debt of Fannie Mae | | 54,780 | | | 254,559 | | | Proceeds from issuance of debt of Fannie Mae | | 97,899 | | | 54,780 | | |
| Payments to redeem debt of Fannie Mae | Payments to redeem debt of Fannie Mae | | (69,735) | | | (207,818) | | | Payments to redeem debt of Fannie Mae | | (117,002) | | | (69,735) | | |
| Proceeds from issuance of debt of consolidated trusts | Proceeds from issuance of debt of consolidated trusts | | 339,056 | | | 135,918 | | | Proceeds from issuance of debt of consolidated trusts | | 180,031 | | | 339,056 | | |
| Payments to redeem debt of consolidated trusts | Payments to redeem debt of consolidated trusts | | (335,896) | | | (164,726) | | | Payments to redeem debt of consolidated trusts | | (188,258) | | | (335,896) | | |
| | Other, net | Other, net | | 71 | | | (470) | | | Other, net | | — | | | 71 | | |
| Net cash provided by (used in) financing activities | | (11,724) | | | 17,463 | | | |
| Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents | | (1,282) | | | 67,301 | | | |
| Net cash used in financing activities | | Net cash used in financing activities | | (27,330) | | | (11,724) | | |
| Net decrease in cash, cash equivalents and restricted cash and cash equivalents | | Net decrease in cash, cash equivalents and restricted cash and cash equivalents | | (19,650) | | | (1,282) | | |
| Cash, cash equivalents and restricted cash and cash equivalents at beginning of period | Cash, cash equivalents and restricted cash and cash equivalents at beginning of period | | 115,623 | | | 61,407 | | | Cash, cash equivalents and restricted cash and cash equivalents at beginning of period | | 108,631 | | | 115,623 | | |
| Cash, cash equivalents and restricted cash and cash equivalents at end of period | Cash, cash equivalents and restricted cash and cash equivalents at end of period | | $ | 114,341 | | | $ | 128,708 | | | Cash, cash equivalents and restricted cash and cash equivalents at end of period | | $ | 88,981 | | | $ | 114,341 | | |
| Cash paid during the period for: | Cash paid during the period for: | | | | | | Cash paid during the period for: | | | | | |
| Interest | Interest | | $ | 27,019 | | | $ | 28,867 | | | Interest | | $ | 24,475 | | | $ | 27,019 | | |
| Income taxes | Income taxes | | 0 | | | 0 | | | Income taxes | | — | | | — | | |
See Notes to Condensed Consolidated Financial Statements
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 7367 |
| | | | | | | | |
| Financial Statements | Condensed Consolidated Statements of Changes in Equity |
FANNIE MAE
(In conservatorship)
Condensed Consolidated Statements of Changes in
Equity — (Unaudited)
(Dollars and shares in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fannie Mae Stockholders’ Equity |
| | Shares Outstanding | | Senior
Preferred Stock | | Preferred
Stock | | Common
Stock | |
Accumulated
Deficit | | Accumulated
Other
Comprehensive
Income | | Treasury
Stock | | | | Total
Equity |
| Senior
Preferred | | Preferred | | Common | |
| Balance as of December 31, 2021 | | 1 | | | 556 | | | 1,158 | | | $ | 120,836 | | | $ | 19,130 | | | $ | 687 | | | $ | (85,934) | | | $ | 38 | | | $ | (7,400) | | | | | $ | 47,357 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 4,408 | | | — | | | — | | | | | 4,408 | |
| Other comprehensive income, net of tax effect: | | | | | | | | | | | | | | | | | | | | | | |
| Changes in net unrealized gains on available- for-sale securities (net of taxes of $2) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9) | | | — | | | | | (9) | |
| Reclassification adjustment for gains included in net income (net of taxes of $1) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 4 | | | — | | | | | 4 | |
| Other (net of taxes of $1) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2) | | | — | | | | | (2) | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | 4,401 | |
| Balance as of March 31, 2022 | | 1 | | | 556 | | | 1,158 | | | $ | 120,836 | | | $ | 19,130 | | | $ | 687 | | | $ | (81,526) | | | $ | 31 | | | $ | (7,400) | | | | | $ | 51,758 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fannie Mae Stockholders’ Equity |
| | Shares Outstanding | | Senior
Preferred Stock | | Preferred
Stock | | Common
Stock | |
Accumulated
Deficit | | Accumulated
Other
Comprehensive
Income | | Treasury
Stock | | | | Total
Equity |
| Senior
Preferred | | Preferred | | Common | |
| Balance as of December 31, 2020 | | 1 | | | 556 | | | 1,158 | | | $ | 120,836 | | | $ | 19,130 | | | $ | 687 | | | $ | (108,110) | | | $ | 116 | | | $ | (7,400) | | | | | $ | 25,259 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 4,993 | | | — | | | — | | | | | 4,993 | |
| Other comprehensive income, net of tax effect: | | | | | | | | | | | | | | | | | | | | | | |
| Changes in net unrealized gains on available- for-sale securities (net of taxes of $3) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (12) | | | — | | | | | (12) | |
| Reclassification adjustment for gains included in net income (net of taxes of $3) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (11) | | | — | | | | | (11) | |
| Other (net of taxes of $(1)) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4) | | | — | | | | | (4) | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | 4,966 | |
| Balance as of March 31, 2021 | | 1 | | | 556 | | | 1,158 | | | $ | 120,836 | | | $ | 19,130 | | | $ | 687 | | | $ | (103,117) | | | $ | 89 | | | $ | (7,400) | | | | | $ | 30,225 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fannie Mae Stockholders’ Equity |
| | Shares Outstanding | | Senior
Preferred Stock | | Preferred
Stock | | Common
Stock | |
Accumulated
Deficit | | Accumulated
Other
Comprehensive
Income | | Treasury
Stock | | | | Total
Equity |
| | Senior
Preferred | | Preferred | | Common | |
| Balance as of December 31, 2019 | | 1 | | | 556 | | | 1,158 | | | $ | 120,836 | | | $ | 19,130 | | | $ | 687 | | | $ | (118,776) | | | $ | 131 | | | $ | (7,400) | | | | | $ | 14,608 | |
Transition impact, net of tax, from the adoption of
the current expected credit loss standard | | — | | | — | | | — | | | — | | | — | | | — | | | (1,139) | | | — | | | — | | | | | (1,139) | |
| Balance as of January 1, 2020, adjusted | | 1 | | | 556 | | | 1,158 | | | 120,836 | | | 19,130 | | | 687 | | | (119,915) | | | 131 | | | (7,400) | | | | | 13,469 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 461 | | | — | | | — | | | | | 461 | |
| Other comprehensive income, net of tax effect: | | | | | | | | | | | | | | | | | | | | | | |
| Changes in net unrealized gains on available- for-sale securities (net of taxes of $5) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 18 | | | — | | | | | 18 | |
| Reclassification adjustment for gains included in net income (net of taxes of $0) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | — | | | | | 0 | |
| Other (net of taxes of $1) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3) | | | — | | | | | (3) | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | 476 | |
| Balance as of March 31, 2020 | | 1 | | | 556 | | | 1,158 | | | $ | 120,836 | | | $ | 19,130 | | | $ | 687 | | | $ | (119,454) | | | $ | 146 | | | $ | (7,400) | | | | | $ | 13,945 | |
See Notes to Condensed Consolidated Financial Statements
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 7468 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies |
FANNIE MAE
(In conservatorship)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
Fannie Mae is a leading source of financing for mortgages in the United States. We are a shareholder-owned corporation organized as a government-sponsored entity (“GSE”) and existing under the Federal National Mortgage Association Charter Act (the “Charter Act” or our “charter”). Our charter is an act of Congress, and we have a missionpurpose under that charter to provide liquidity and stability to the residential mortgage market and to promote access to mortgage credit. As a result, 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 have been under conservatorship, with FHFA acting as conservator, since September 6, 2008. See below and “Note 1, Summary of Significant Accounting Policies” in our annual report on Form 10-K for the year ended December 31, 20202021 (“20202021 Form 10-K”) for additional information on our conservatorship and the impact of U.S. government support of our business.
The unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 20212022 and related notes should be read in conjunction with our audited consolidated financial statements and related notes included in our 20202021 Form 10-K.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the SEC’s instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The accompanying condensed consolidated financial statements include our accounts as well as the accounts of other entities in which we have a controlling financial interest. All intercompany accounts and transactions have been eliminated. To conform to our current period presentation, we have reclassified certain amounts reported in our prior period condensed consolidated financial statements. Results for the three months ended March 31, 20212022 may not necessarily be indicative of the results for the year ending December 31, 2021.
Presentation of Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents includes funds held by consolidated MBS trusts that have not yet been remitted to MBS certificateholders under the terms of our servicing guide and the related trust agreements. In the first quarter of 2021, Fannie Mae, in its role as trustee, began to invest funds held by consolidated trusts directly in eligible short-term third-party investments, which may include investments in cash equivalents that are comprised of overnight repurchase agreements and U.S. Treasuries that have a maturity at the date of acquisition of three months or less. The funds underlying these short-term investments are restricted per the trust agreements. Accordingly, any investment in cash equivalents should be classified as restricted and is presented as “Restricted cash and cash equivalents” in our condensed consolidated balance sheets to reflect the investment of funds related to MBS trusts.2022.
Use of Estimates
Preparing condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect our reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of our condensed consolidated financial statements, as well as our reported amounts of revenues and expenses during the reporting periods. Management has made significant estimates in a variety of areas including, but not limited to, the allowance for loan losses. For example, significant uncertainty regarding the expected impacts of the COVID-19 pandemic required substantial management judgment in assessing our allowance for loan losses as of March 31, 2021. Actual results could be different from these estimates.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 75 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies |
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, with FHFA acting as our conservator, 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, including by the Federal Housing Finance Regulatory Reformand Economic Recovery 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 subsequently issued an order that provided for our Board of Directors to exercise specified functions and authorities. The conservator also provided instructions regarding matters for which conservator
| | | | | | | | |
| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 69 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies |
decision or notification is required. The conservator retains the authority to amend or withdraw its order and instructions at any time.
The conservator has the power to transfer or sell any asset or liability of Fannie Mae (subject to limitations and post-transfer notice provisions for transfers of qualified financial contracts) without any approval, assignment of rights or consent of any party. However, mortgage loans and mortgage-related assets that have been transferred to a Fannie Mae MBS trust must be held by the conservator for the beneficial owners of the Fannie Mae MBS and cannot be used to satisfy the general creditors of Fannie Mae. Neither the conservatorship nor the terms of our agreements with Treasury change our obligation to make required payments on our debt securities or perform under our mortgage guaranty obligations.
The conservatorship has no specified termination date and there continues to be significant uncertainty regarding our future, including how long we will continue to exist in our current form, the extent of our role in the market, the level of government support of our business, how long we will be in conservatorship, what form we will have and what ownership interest, if any, our current common and preferred stockholders will hold in us after the conservatorship is terminated and whether we will continue to exist following conservatorship. Under the GSE Act, FHFA must place us into receivership if the Director of FHFA makes a written determination that our assets are less than our obligations or if we have not been paying our debts, in either case, for a period of 60 days. In addition, the Director of FHFA may place us into receivership at histhe Director’s discretion at any time for other reasons set forth in the GSE Act, including if we are critically undercapitalized or if we are undercapitalized and have no reasonable prospect of becoming adequately capitalized. Should we be placed into receivership, different assumptions would be required to determine the carrying value of our assets, which couldwould lead to substantially different financial results. Treasury has made a commitment under the senior preferred stock purchase agreement to provide funding to us under certain circumstances if we have a net worth deficit. We are not aware of any plans of FHFA (1) to fundamentally change our business model, or (2) to reduce the aggregate amount available to or held by the company under our capitalequity structure, which includes the senior preferred stock purchase agreement.
Senior Preferred Stock Purchase Agreement and Senior Preferred Stock
UnderWe discuss more fully our senior preferred stock purchase agreement with Treasury, in September 2008 we issued Treasury 1000000 shares of senior preferred stock and a warrant to purchase shares of our common stock. The senior preferred stock purchase agreement and the dividend and liquidation provisionsterms of the senior preferred stock were amended in January 2021 pursuant to a letter agreement between us, through FHFA in its capacity as conservator, and Treasury. These changes included the following:
•The dividend provisions of the senior preferred stock were amended to permit us to retain increases in our net worth until our net worth exceeds the amount of adjusted total capital necessary for us to meet the capital requirements and buffers under the enterprise regulatory capital framework discussed in “Note 12, Regulatory Capital Requirements” in our 2020 Form 10-K. After the “capital reserve end date,” which is defined as the last day of the second consecutive fiscal quarter during which we have maintained capital equal to, or in excess of, all of the capital requirements and buffers under the enterprise regulatory capital framework, the amount of quarterly dividends to Treasury will be equal to the lesser of any quarterly increase in our net worth and a 10% annual rate on the then-current liquidation preference of the senior preferred stock.
•At the end of each fiscal quarter, through and including the capital reserve end date, the liquidation preference of the senior preferred stock will be increased by an amount equal to the increase in our net worth, if any, during the immediately prior fiscal quarter.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 76 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies |
•We may issue and retain up to $70 billion in proceeds from the sale ofcommon stock without Treasury’s prior consent, provided that (1) Treasury has already exercised its warrant in full, and (2) all currently pending significant litigation relating to the conservatorship and to an amendment to the senior preferred stock purchase agreement, madeas amended, including Treasury’s funding commitment, in August 2012 has been resolved, which may require Treasury’s assent.
•FHFA may release us from conservatorship without Treasury’s consent after (1) all currently pending significant litigation relating to the conservatorship and to the August 2012 amendment to the senior preferred stock purchase agreement has been resolved, and (2)“Note 11, Equity” in our common equity tier 1 capital, together with any other common stock that we may issue in a public offering, equals or exceeds 3% of our “adjusted total assets” under our enterprise regulatory capital framework.
•New restrictive covenants were added that will impact both our single-family and multifamily business activities.
The amendment has been accounted for as a modification of the existing arrangement. As a result, there is no change in the carrying value of the senior preferred stock.2021 Form 10-K.
Treasury has made a commitment under the senior preferred stock purchase agreement to provide funding to us under certain circumstances if we have a net worth deficit. Pursuant to the senior preferred stock purchase agreement, we have received a total of $119.8 billion from Treasury as of March 31, 2021,2022, and the amount of remaining funding available to us under the agreement is $113.9 billion. We have not received any funding from Treasury under this commitment since the first quarter of 2018. We had positive net worth of $51.8 billion as of March 31, 2022.
DividendThe dividend provisions of the senior preferred stock permit us to retain increases in our net worth until our net worth exceeds the amount of adjusted total capital necessary for us to meet the capital requirements and buffers under the enterprise regulatory capital framework established by FHFA in November 2020. FHFA.
The aggregate liquidation preference of the senior preferred stock increased to $146.8$168.9 billion as of March 31, 20212022 and will further increase to $151.7$173.3 billion as of June 30, 20212022, due to the $5.0$4.4 billion increase in our net worth duringin the first quarter of 2021.
See “Note 11, Equity” in our 2020 Form 10-K for additional information about the senior preferred stock purchase agreement and the senior preferred stock.2022.
Statutory Capital
We submit capital reports to FHFA, which monitors our capital levels. The deficit of core capital over statutory minimum capital was $119.5 billion as of March 31, 2021 and $124.3 billion as of December 31, 2020.
Related Parties
Because Treasury holds a warrant to purchase shares of Fannie Mae common stock equal to 79.9% of the total number of shares of Fannie Mae common stock, we and Treasury are deemed related parties. As of March 31, 2021, Treasury held an investment in our senior preferred stock with an aggregate liquidation preference of $146.8 billion. See “Senior Preferred Stock Purchase Agreement and Senior Preferred Stock” above for additional information on transactions under this agreement and the modifications made in the January 2021 letter agreement.
FHFA’s control of both Fannie Mae and Freddie Mac has caused Fannie Mae, FHFA and Freddie Mac to be deemed related parties. Additionally, Fannie Mae and Freddie Mac jointly own Common Securitization Solutions, LLC (“CSS”), a limited liability company created to operate a common securitization platform; as a result, CSS is deemed a related party. As a part of our joint ownership, Fannie Mae, Freddie Mac and CSS are parties to a limited liability company agreement that sets forth the overall framework for the joint venture, including Fannie Mae’s and Freddie Mac’s rights and responsibilities as members of CSS. Fannie Mae, Freddie Mac and CSS are also parties to a customer services agreement that sets forth the terms under which CSS provides mortgage securitization services to us and Freddie Mac, including the operation of the common securitization platform, as well as an administrative services agreement. CSS operates as a separate company from us and Freddie Mac, with all funding and limited administrative support services and other resources provided to it by us and Freddie Mac through our capital contributions.Mac.
In the ordinary course of business, Fannie Mae may purchase and sell securities issued by Treasury and Freddie Mac. These transactions occur on the same terms as those prevailing at the time for comparable transactions with unrelated parties. Some of the structured securities we issue are backed in whole or in part by Freddie Mac securities. Fannie Mae and Freddie Mac each have agreed to indemnify the other party for losses caused by: its failure to meet its payment or other specified obligations under the trust agreements pursuant to which the underlying resecuritized securities were issued; its failure to meet its obligations under the customer services agreement; its violations of laws; or with respect to material misstatements or omissions in offering documents, ongoing disclosures and related materials relating to the underlying resecuritized securities. Additionally, we make regular income tax payments to and receive tax refunds from the Internal Revenue Service (“IRS”), a bureau of Treasury.
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Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 7770 |
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| Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies |
relating to the underlying resecuritized securities. Additionally, we make regular income tax payments to and receive tax refunds from the Internal Revenue Service (“IRS”), a bureau of Treasury.
Transactions with Treasury
Our administrative expenses were reduced by $4 million and $5 million for the three months ended March 31, 20212022 and 2020, respectively,2021, due to reimbursements from Treasury and Freddie Mac for expenses incurred as program administrator for Treasury’s Home Affordable Modification Program and other initiatives under Treasury’s Making Home Affordable Program.
In December 2011, Congress enacted the Temporary Payroll Cut Continuation Act of 2011 (“TCCA”) which, among other provisions, required that we increase our single-family guaranty fees by at least 10 basis points and remit this increase to Treasury. Effective April 1, 2012,To meet our obligations under the TCCA and at the direction of FHFA, we increased the guaranty fee on all single-family residential mortgages delivered to us by 10 basis points. In 2012, FHFA and Treasury advised us to remit this fee increase to Treasury with respect to all loans acquired by us on or afterpoints effective 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.2012. The resulting fee revenue and expense are recorded in “Interest income: Mortgage loans” and “TCCA fees,” respectively, in our condensed consolidated statements of operations and comprehensive income.
In 2020, FHFA provided guidance that we are not required to accrue or remit TCCA fees to Treasury with respect to loans backing MBS trusts that have been delinquent for four months or longer. Once payments on such loans resume, we will resume accrual and remittance to Treasury of the associated TCCA fees on the loans.
In November 2021, the Infrastructure Investment and Jobs Act was enacted, which extended to October 1, 2032 our obligation under the TCCA to collect 10 basis points in guaranty fees on single-family residential mortgages delivered to us and pay the associated revenue to Treasury. In January 2022, FHFA advised us to continue to pay these TCCA fees to Treasury with respect to all single-family loans acquired by us before October 1, 2032, and to continue to remit these amounts to Treasury on and after October 1, 2032 with respect to loans we acquired before this date until those loans are paid off or otherwise liquidated.
We recognized $731$824 million and $637$731 million in TCCA fees during the three months ended March 31, 20212022 and 2020,2021, respectively, of which $727$824 million had not been remitted to Treasury as of March 31, 2021.2022.
The GSE Act requires us to set aside certain funding obligations, a portion of which is attributable to Treasury’s Capital Magnet Fund. These funding obligations, recognized in “Other expenses, net” in our condensed consolidated statements of operations and comprehensive income, wereare measured as the product of 4.2 basis points and the unpaid principal balance of our total new business purchases for the respective period, andwith 35% of this amount is payable to Treasury’s Capital Magnet Fund. We recognized a total of $38 million and $62 million for the three months ended March 31, 2022 and $30 million2021, respectively, in “Other expenses, net” in connection with Treasury’s Capital Magnet Fund, for the three months ended March 31, 2021 and 2020, respectively, of which $62$38 million has not been remitted as of March 31, 2021.2022.
Transactions with FHFA
The GSE Act authorizes FHFA to establish an annual assessment for regulated entities, including Fannie Mae, which is payable on a semi-annual basis (April and October), for FHFA’s costs and expenses, as well as to maintain FHFA’s working capital. We recognized FHFA assessment fees, which are recorded in “Administrative expenses” in our condensed consolidated statements of operations and comprehensive income, of $37$32 million and $32$37 million for the three months ended March 31, 20212022 and 2020,2021, respectively.
Transactions with CSS and Freddie Mac
We contributed capital to CSS, the company we jointly own with Freddie Mac, of $27$22 million and $29$27 million for the three months ended March 31, 20212022 and 2020,2021, respectively.
Derivatives
We recognize our derivatives as either assets or liabilities in our condensed consolidated balance sheets at their fair value on a trade date basis. Changes in fair value and interest accruals on derivatives not in qualifying fair value hedging relationships are recorded as “fair value gains (losses), net” in our condensed consolidated statements of operations and comprehensive income. We offset the carrying amounts of certain derivatives that are in gain positions and loss positions as well as cash collateral receivables and payables associated with derivative positions pursuant to the terms of enforceable master netting arrangements. We offset these amounts only when we have the legal right to offset under the contract and we have met all the offsetting conditions. For our over-the-counter (“OTC”) derivative positions, our master netting arrangements allow us to net derivative assets and liabilities with the same counterparty. For our cleared derivative contracts, our master netting arrangements allow us to net our exposure by clearing organization and by clearing member.
After offsetting, we report derivatives in a gain position in “Other assets” and derivatives in a loss position in “Other liabilities” in our condensed consolidated balance sheets.
We evaluate financial instruments that we purchase or issue and other financial and non-financial contracts for embedded derivatives. To identify embedded derivatives that we must account for separately, we determine whether: (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 host 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
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Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 78 |
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| Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies |
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.
Fair value hedge accounting
In January 2021, to reduce earnings volatility related to changes in benchmark interest rates, we began applying fair value hedge accounting to certain pools of single-family mortgage loans and certain issuances of our funding debt by designating such instruments as the hedged item in hedging relationships with interest-rate swaps. In these relationships, we have designated the change in the benchmark interest rate, either the London Inter-bank Offered Rate (“LIBOR”) or Secured Overnight Financing Rate (“SOFR”), as the risk being hedged. We have elected to use the last-of-layer method to hedge certain pools of single-family mortgage loans. This election involves establishing fair value hedging relationships on the portion of each loan pool that is not expected to be affected by prepayments, defaults and other events that affect the timing and amount of cash flows. The term of each hedging relationship is generally one business day and we establish hedging relationships daily to align our hedge accounting with our risk management practices.
We apply hedge accounting to qualifying hedging relationships. A qualifying hedging relationship exists when changes in the fair value of a derivative hedging instrument are expected to be highly effective in offsetting changes in the fair value of the hedged item attributable to the risk being hedged during the term of the hedging relationship. We assess hedge effectiveness using statistical regression analysis. A hedging relationship is considered highly effective if the total change in fair value of the hedging instrument and the change in the fair value of the hedged item due to changes in the benchmark interest rate offset each other within a range of 80% to 125% and certain other statistical tests are met.
If a hedging relationship qualifies for hedge accounting, the change in the fair value of the interest-rate swaps and the change in the fair value of the hedged item for the risk being hedged are recorded through net interest income. A corresponding basis adjustment is recorded against the hedged item, either the pool of mortgage loans or the debt, for the changes in the fair value attributable to the risk being hedged. For hedging relationships that hedge pools of single-family mortgage loans, basis adjustments are allocated to individual single-family loans based on the relative unpaid principal balance of each loan at the termination of the hedging relationship. The cumulative basis adjustments on the hedged item are amortized into earnings using the effective interest method over the contractual life of the hedged item, with amortization beginning upon termination of the hedging relationship.
All changes in fair value of the designated portion of the derivative hedging instrument (i.e., interest-rate swap), including interest accruals, are recorded in the same line item in the condensed consolidated statements of operations and comprehensive income used to record the earnings effect of the hedged item. Therefore, changes in the fair value of the hedged mortgage loans and debt attributable to the risk being hedged are recognized in “Interest income” or “Interest expense,” along with the changes in the fair value of the respective derivative hedging instruments.
The recognition of basis adjustments on the hedged item and the subsequent amortization are noncash activities and are reported in “Net cash provided by operating activities” in our condensed consolidated statements of cash flows. Cash on derivative instruments paid or received while the derivative is designated in a hedging relationship is reported as “Net cash provided by operating activities” in the condensed consolidated statement of cash flows.
See “Note 3, Mortgage Loans,” “Note 7, Short-Term and Long-Term Debt” and “Note 8, Derivative Instruments” for additional information on our fair value hedge accounting policy and related disclosures.
Earnings per Share
Earnings per share (“EPS”) is presented for basic and diluted EPS. We compute basic EPS by dividing net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. However, as a result of our conservatorship status and the terms of the senior preferred stock, no amounts would be available to distribute as dividends to common or preferred stockholders (other than to Treasury as the holder of the senior preferred stock). Net income (loss) attributable to common stockholders excludes amounts attributable to the senior preferred stock. Weighted average common shares include 4.7 billion shares for the periods ended March 31, 20212022 and 20202021 that would have been issued upon the full exercise of the warrant issued to Treasury from the date the warrant was issued through March 31, 20212022 and 2020.2021.
The calculation of diluted EPS includes all the components of basic earnings per share, plus the dilutive effect of common stock equivalents such as convertible securities and stock options. Weighted average shares outstanding is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Our diluted EPS weighted-average shares outstanding includes 26 million shares issuable upon the conversion of convertible preferred stock as of March 31, 2021. For the three months ended March 31, 2022 and March 31, 2021, our diluted EPS
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Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 7971 |
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| Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies |
31, 2020,weighted-average shares outstanding includes 26 million shares issuable upon the conversion of convertible preferred stockstock.
New Accounting Guidance
Adoption of ASU 2022-02
The Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2022-02, Financial Instruments – Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) in March 2022. The amendments in ASU 2022-02 eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors while enhancing disclosure requirements for certain loan restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity would apply the loan refinancing and restructuring guidance to determine whether a modification or other form of restructuring results in a new loan or a continuation of an existing loan.
Additionally, the amendments in this ASU require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases in the existing vintage disclosures.
The ASU is effective for fiscal years beginning after December 15, 2022, for creditors that have adopted the amendments in Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Early adoption is permitted in any interim period and such election may be made individually to adopt the guidance related to TDRs, including related disclosures, and the presentation of gross write-offs in the vintage disclosure. ASU 2022-02 requires prospective transition for the disclosures related to loan restructurings for borrowers experiencing financial difficulty and the presentation of gross write-offs in the vintage disclosures. The guidance related to the recognition and measurement of TDRs may be adopted on a prospective or modified retrospective transition method.
We elected to early adopt the guidance related to the elimination of the recognition and measurement of TDRs and the enhancement of disclosures for loan restructurings for borrowers experiencing financial difficulty as of January 1, 2022, using the prospective transition method. As of our adoption date, all restructurings, including restructurings for borrowers experiencing financial difficulty, are evaluated to determine whether they result in a new loan or a continuation of an existing loan. Loan restructurings for borrowers experiencing financial difficulty are generally accounted for as a continuation of the existing loan as the terms of the restructured loans are typically not at market rates. At adoption of this guidance on January 1, 2022, there was no material impact on our financial statements.
When a single-family loan is restructured under ASU 2022-02, we continue to measure impairment on the loan using a discounted cash flow approach that utilizes a prepayment-adjusted discount rate that is based on the loan’s restructured terms. Under the TDR accounting model, we used the discount rate that was in effect prior to the restructuring to measure impairment. Using the interest rate that was in effect prior to the restructuring resulted in the recognition, in the allowance for loan losses, of the economic concession that we granted to borrowers as part of the loan restructuring. Using a post-restructuring interest rate does not result in the recognition of an economic concession in the allowance for loan losses.
As we have elected a prospective transition, the economic concession on a loan that was previously restructured and accounted for as a TDR will continue to be measured in our allowance for loan losses using the discount rate that was in effect prior to the restructuring and the economic concession may increase or decrease as we update our cash flow assumptions related to the loan’s expected life. Further, the component of the allowance for loan losses representing economic concessions will decrease as the borrower makes payments in accordance with the restructured terms of the mortgage loan and as the loan is sold, liquidated, or subsequently restructured.
In general, the accounting for restructurings made to borrowers experiencing financial difficulty upon adoption of the ASU is consistent with the accounting that we applied to troubled debt restructurings under section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and the Consolidated Appropriations Act of 2021, which provided temporary relief from the accounting and reporting requirements for certain troubled debt restructurings related to COVID-19 beginning March 2020 through January 1, 2022.
We plan to adopt the disclosure guidance related to the presentation of gross write-offs by year of origination in our vintage disclosures upon the effective date of ASU 2022-02, January 1, 2023. We do not expect the adoption of the guidance requiring gross write-offs by year of origination in our vintage disclosures to have a material impact on our financial statements.
Fair Value Hedging - Portfolio Layer Method
On March 28, 2022, the FASB issued ASU 2022-01, Fair Value Hedging - Portfolio Layer Method, which clarifies the guidance on fair value hedge accounting of interest rate risk portfolios of financial assets. The ASU expands the scope
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| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 72 |
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| Notes to Condensed Consolidated Financial Statements | Summary of Significant Accounting Policies |
of the current last-of-layer method to allow entities to apply this method, renamed the portfolio layer method, to non-prepayable financial assets and to designate multiple hedge relationships within a single closed portfolio of financial assets. Additionally, the ASU clarifies that basis adjustments related to existing portfolio layer hedge relationships should not be considered when measuring credit losses on the financial assets included in the calculation becauseclosed portfolio. Further, the ASU clarifies that any reversal of fair value hedge basis adjustments associated with an actual breach should be recognized in interest income immediately.
The ASU is effective for public business entities for fiscal years beginning after December 15, 2022, and interim periods within those years. We plan to adopt this guidance effective January 1, 2023. The adoption of this guidance is not expected to have a net loss attributable to common shareholders was incurred and it would have an anti-dilutive effect.material impact on our financial statements.
2. Consolidations and Transfers of Financial Assets
We have interests in various entities that are considered to be variable interest entities (“VIEs”). The primary types of entities are securitization and resecuritization trusts, limited partnerships and special purpose vehicles (“SPVs”). These interests include investments in securities issued by VIEs, such as Fannie Mae MBS created pursuant to our securitization transactions and our guaranty to the entity. We consolidate the substantial majority of our single-class securitization trusts because our role as guarantor and master servicer provides us with the power to direct matters (primarily the servicing of mortgage loans) that impact the credit risk to which we are exposed. In contrast, we do not consolidate single-class securitization trusts when other organizations have the power to direct these activities unless we have the unilateral ability to dissolve the trust. We also do not consolidate our resecuritization trusts unless we have the unilateral ability to dissolve the trust. Historically, the vast majority of underlying assets of our resecuritization trusts were limited to Fannie Mae securities that were collateralized by mortgage loans held in consolidated trusts. However, with our issuance of uniform mortgage-backed securities (“UMBS®”), we include securities issued by Freddie Mac in some of our resecuritization trusts. The mortgage loans that serve as collateral for Freddie Mac-issued securities are not held in trusts that are consolidated by Fannie Mae.
Unconsolidated VIEs
We do not consolidate VIEs when we are not deemed to be the primary beneficiary. Our unconsolidated VIEs include securitization and resecuritization trusts, limited partnerships, and certain SPVs designed to transfer credit risk. The following table displays the carrying amount and classification of our assets and liabilities that relate to our involvement with unconsolidated securitization and resecuritization trusts.
| | | | | | | | | | | | | | | As of |
| | As of | | March 31, 2022 | | December 31, 2021 |
| | March 31, 2021 | | December 31, 2020 | | | | |
| | (Dollars in millions) | | (Dollars in millions) |
| Assets and liabilities recorded in our condensed consolidated balance sheets related to unconsolidated mortgage-backed trusts: | Assets and liabilities recorded in our condensed consolidated balance sheets related to unconsolidated mortgage-backed trusts: | | Assets and liabilities recorded in our condensed consolidated balance sheets related to unconsolidated mortgage-backed trusts: | |
| Assets: | Assets: | | Assets: | |
| Trading securities: | Trading securities: | | Trading securities: | |
| Fannie Mae | Fannie Mae | | $ | 1,243 | | | $ | 1,611 | | Fannie Mae | | $ | 1,254 | | | $ | 984 | |
| Non-Fannie Mae | Non-Fannie Mae | | 3,598 | | | 3,608 | | Non-Fannie Mae | | 2,837 | | | 3,030 | |
| Total trading securities | Total trading securities | | 4,841 | | | 5,219 | | Total trading securities | | 4,091 | | | 4,014 | |
| Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
| Fannie Mae | Fannie Mae | | 1,036 | | | 1,168 | | Fannie Mae | | 476 | | | 495 | |
| Non-Fannie Mae | Non-Fannie Mae | | 279 | | | 318 | | Non-Fannie Mae | | 191 | | | 200 | |
| Total available-for-sale securities | Total available-for-sale securities | | 1,315 | | | 1,486 | | Total available-for-sale securities | | 667 | | | 695 | |
| Other assets | Other assets | | 39 | | | 41 | | Other assets | | 34 | | | 35 | |
| Other liabilities | Other liabilities | | (65) | | | (67) | | Other liabilities | | (40) | | | (41) | |
| Net carrying amount | Net carrying amount | | $ | 6,130 | | | $ | 6,679 | | Net carrying amount | | $ | 4,752 | | | $ | 4,703 | |
Our maximum exposure to loss generally represents the greater of our carrying value in the entity or the unpaid principal balance of the assets covered by our guaranty. Our involvement in unconsolidated resecuritization trusts may give rise to additional exposure to loss depending on the type of resecuritization trust. Fannie Mae non-commingled resecuritization trusts are backed entirely by Fannie Mae MBS. These non-commingled single-class and multi-class
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| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 73 |
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| Notes to Condensed Consolidated Financial Statements | Consolidations and Transfers of Financial Assets |
resecuritization trusts are not consolidated and do not give rise to any additional exposure to loss as we already consolidate the underlying collateral.
Fannie Mae commingled resecuritization trusts are backed in whole or in part by Freddie Mac securities. The guaranty that we provide to these commingled resecuritization trusts may increase our exposure to loss to the extent that we are providing a guaranty for the timely payment and interest on the underlying Freddie Mac securities that we have not previously guaranteed. Our maximum exposure to loss for these unconsolidated trusts is measured by the amount of Freddie Mac securities that are held in these resecuritization trusts.
Our maximum exposure to loss related to
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Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 80 |
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| Notes to Condensed Consolidated Financial Statements | Consolidations and Transfers of Financial Assets |
unconsolidated securitization and resecuritization trusts, which includes but is not limited to our exposure to these Freddie Mac securities, was approximately $164$243 billion and $146$220 billion as of March 31, 20212022 and December 31, 2020,2021, respectively. The total assets of our unconsolidated securitization and resecuritization trusts were approximately $230$260 billion and $180$250 billion as of March 31, 20212022 and December 31, 2020,2021, respectively.
The maximum exposure to loss for our unconsolidated limited partnerships and similar legal entities, which consist of low-income housing tax credit investments (“LIHTC”), investments, community investments and other entities, was $169$334 million and the related net carrying value was $163$328 million as of March 31, 2021.2022. As of December 31, 2020,2021, the maximum exposure to loss was $126$292 million and the related net carrying value was $121$288 million. The total assets of these limited partnership investments were $2.5$3.7 billion as of March 31, 20212022 and $2.6 billion as of December 31, 2020.2021.
The maximum exposure to loss related to our involvement with unconsolidated SPVs that transfer credit risk represents the unpaid principal balance and accrued interest payable of obligations issued by the Connecticut Avenue Securities® (“CAS”) and Multifamily Connecticut Avenue SecuritiesTM (“MCAS”MCASTM”) SPVs. The maximum exposure to loss related to these unconsolidated SPVs was $10.4$13.6 billion and $11.4$10.4 billion as of March 31, 20212022 and December 31, 2020,2021, respectively. The total assets related to these unconsolidated SPVs were $10.5$13.7 billion and $11.4$10.4 billion as of March 31, 20212022 and December 31, 2020,2021, respectively.
The unpaid principal balance of our multifamily loan portfolio was $388.6$410.2 billion as of March 31, 2021.2022. As our lending relationship does not provide us with a controlling financial interest in the borrower entity, we do not consolidate these borrowers regardless of their status as either a VIE or a voting interest entity. We have excluded these entities from our VIE disclosures. However, the disclosures we have provided in “Note 3, Mortgage Loans,” “Note 4, Allowance for Loan Losses” and “Note 6, Financial Guarantees” with respect to this population are consistent with the FASB’s stated objectives for the disclosures related to unconsolidated VIEs.
Transfers of Financial Assets
We issue Fannie Mae MBS through portfolio securitization transactions by transferring pools of mortgage loans or mortgage-related securities to one or more trusts or special purpose entities. We are considered to be the transferor when we transfer assets from our own retained mortgage portfolio in a portfolio securitization transaction. For the three months ended March 31, 20212022 and 2020,2021, the unpaid principal balance of portfolio securitizations was $216.7$102.8 billion and $89.0$216.7 billion, respectively. The substantial majority of these portfolio securitization transactions generally do not qualify for sale treatment. Portfolio securitization trusts that do qualify for sale treatment primarily consist of loans that are guaranteed or insured, in whole or in part, by the U.S. government.
We retain interests from the transfer and sale of mortgage-related securities to unconsolidated single-class and multi-class portfolio securitization trusts. As of March 31, 2022, the unpaid principal balance of retained interests was $1.5 billion and its related fair value was $2.2 billion. As of December 31, 2021, the unpaid principal balance of retained interests was $1.4$1.1 billion and its related fair value was $2.5 billion. As of December 31, 2020, the unpaid principal balance of retained interests was $1.7 billion and its related fair value was $2.9$2.0 billion. For the three months ended March 31, 20212022 and 2020,2021, the principal, interest and other fees received on retained interests was $143$114 million and $181$143 million, respectively.
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Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 8174 |
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| Notes to Condensed Consolidated Financial Statements | Mortgage Loans |
3. Mortgage Loans
We own single-family mortgage loans, which are secured by four or fewer residential dwelling units, and multifamily mortgage loans, which are secured by five or more residential dwelling units. We classify these loans as either held for investment (“HFI”) or held for sale (“HFS”). WeFor purposes of our notes to the condensed consolidated financial statements, we report the amortized cost of HFI loans for which we have not elected the fair value option at the unpaid principal balance, net of unamortized premiums and discounts, hedge-related basis adjustments, other cost basis adjustments, and accrued interest receivable net.in these “Note 3, Mortgage Loans” disclosures. For purposes of our condensed consolidated balance sheets, we present accrued interest receivable, net separately from the amortized cost of our loans held for investment. We report the carrying value of HFS loans at the lower of cost or fair value and record valuation changes in “Investment gains (losses), net” in our condensed consolidated statements of operations and comprehensive income. See “Note 1, Summary of Significant Accounting Policies” and “Note 8, Derivative Instruments” for additional information on hedge-related basis adjustments and on implementation of our fair value hedge accounting program in January 2021.
For purposes of the single-family mortgage loan disclosures below, we display loans by class of financing receivable type. Financing receivable classes used for disclosure consist of: “20- and 30-year or more, amortizing fixed-rate,” “15-year or less, amortizing fixed-rate,” “Adjustable-rate,” and “Other.” The “Other” class primarily consists of reverse mortgage loans, interest-only loans, negative-amortizing loans and second liens.
The following table displays the carrying value of our mortgage loans and allowance for loan losses.
| | | As of | | As of |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | (Dollars in millions) | | (Dollars in millions) |
| Single-family | Single-family | | $ | 3,286,381 | | | $ | 3,216,146 | | Single-family | | $ | 3,579,290 | | | $ | 3,495,573 | |
| Multifamily | Multifamily | | 388,591 | | | 373,722 | | Multifamily | | 410,190 | | | 403,452 | |
| Total unpaid principal balance of mortgage loans | Total unpaid principal balance of mortgage loans | | 3,674,972 | | | 3,589,868 | | Total unpaid principal balance of mortgage loans | | 3,989,480 | | | 3,899,025 | |
| Cost basis and fair value adjustments, net | Cost basis and fair value adjustments, net | | 74,536 | | | 74,576 | | Cost basis and fair value adjustments, net | | 66,957 | | | 74,846 | |
| Allowance for loan losses for HFI loans | Allowance for loan losses for HFI loans | | (9,628) | | | (10,552) | | Allowance for loan losses for HFI loans | | (5,899) | | | (5,629) | |
Total mortgage loans(1) | Total mortgage loans(1) | | $ | 3,739,880 | | | $ | 3,653,892 | | Total mortgage loans(1) | | $ | 4,050,538 | | | $ | 3,968,242 | |
(1)Excludes $9.9$9.3 billion and $9.8$9.1 billion of accrued interest receivable, net of allowance as of March 31, 20212022 and December 31, 2020, respectively.2021.
The following tables displaytable displays information about our redesignation of loans from HFI to HFS and the sales of mortgage loans during the period.
| | | | For the Three Months Ended March 31, | | | | For the Three Months Ended March 31, |
| | | For the Three Months Ended March 31, | | | For the Three Months Ended March 31, |
| | | 2021 | | 2020 | | | 2022 | | 2021 |
| | (Dollars in millions) | | | (Dollars in millions) |
| Single-family loans redesignated from HFI to HFS: | Single-family loans redesignated from HFI to HFS: | | | | Single-family loans redesignated from HFI to HFS: | | |
| Amortized cost | Amortized cost | | | $ | 3,112 | | | $ | 1,637 | | Amortized cost | | | $ | 1,181 | | | $ | 3,112 | |
Lower of cost or fair value adjustment at time of redesignation(1) | Lower of cost or fair value adjustment at time of redesignation(1) | | | (54) | | | (9) | | Lower of cost or fair value adjustment at time of redesignation(1) | | | (13) | | | (54) | |
| Allowance reversed at time of redesignation | Allowance reversed at time of redesignation | | | 361 | | | 184 | | Allowance reversed at time of redesignation | | | 63 | | | 361 | |
| | Single-family loans sold: | Single-family loans sold: | | | | Single-family loans sold: | | |
| Unpaid principal balance | Unpaid principal balance | | | $ | 208 | | | $ | 0 | | Unpaid principal balance | | | $ | — | | | $ | 208 | |
| Realized gains, net | Realized gains, net | | | 2 | | | 0 | | Realized gains, net | | | — | | | 2 | |
|
(1)Consists of the write-off against the allowance at the time of redesignation.
The amortized cost of single-family mortgage loans for which formal foreclosure proceedings were in process was $4.7 billion and $5.0$5.1 billion as of March 31, 20212022 and $4.4 billion as of December 31, 2020, respectively.2021. As a result of our various loss mitigation and foreclosure prevention efforts, we expect that a portion of the loans in the process of formal foreclosure proceedings will not ultimately foreclose. In addition, in response to the COVID-19 pandemic, we have prohibited our servicers from completing foreclosures on our single-family loans through at least June 30, 2021, except in the case of vacant or abandoned properties.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 8275 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Mortgage Loans |
Aging Analysis
The following tables display an aging analysis of the total amortized cost of our HFI mortgage loans by portfolio segment and class of financing receivable, excluding loans for which we have elected the fair value option.
Pursuant to the CARES Act, for purposes of reporting to the credit bureaus, servicers must report a borrower receiving a COVID-19-related payment accommodation during the covered period, such as a forbearance plan or loan modification, as current if the borrower was current prior to receiving the accommodation and the borrower makes all required payments in accordance with the accommodation. For purposes of our disclosures regarding delinquency status, we report loans receiving COVID-19-related payment forbearance as delinquent according to the contractual terms of the loan. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of March 31, 2022 | | | | | | | | | | |
| | 30 - 59 Days Delinquent | | 60 - 89 Days Delinquent | | Seriously Delinquent(1) | | Total Delinquent | | Current | | Total | | Loans 90 Days or More Delinquent and Accruing Interest | | Nonaccrual Loans with No Allowance | | | | | | | | | | |
| | | (Dollars in millions) | | | | | | | | | | |
| Single-family: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $ | 19,604 | | | $ | 5,276 | | | $ | 30,615 | | | $ | 55,495 | | | $ | 2,990,605 | | | $ | 3,046,100 | | | $ | 19,646 | | | $ | 5,135 | | | | | | | | | | | |
| 15-year or less, amortizing fixed-rate | | 1,532 | | | 300 | | | 1,323 | | | 3,155 | | | 531,639 | | | 534,794 | | | 1,061 | | | 147 | | | | | | | | | | | |
| Adjustable-rate | | 146 | | | 36 | | | 266 | | | 448 | | | 25,743 | | | 26,191 | | | 198 | | | 55 | | | | | | | | | | | |
Other(2) | | 594 | | | 188 | | | 1,497 | | | 2,279 | | | 33,548 | | | 35,827 | | | 735 | | | 459 | | | | | | | | | | | |
| Total single-family | | 21,876 | | | 5,800 | | | 33,701 | | | 61,377 | | | 3,581,535 | | | 3,642,912 | | | 21,640 | | | 5,796 | | | | | | | | | | | |
Multifamily(3) | | 72 | | | N/A | | 1,558 | | | 1,630 | | | 410,837 | | | 412,467 | | | 194 | | | 98 | | | | | | | | | | | |
| Total | | $ | 21,948 | | | $ | 5,800 | | | $ | 35,259 | | | $ | 63,007 | | | $ | 3,992,372 | | | $ | 4,055,379 | | | $ | 21,834 | | | $ | 5,894 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of March 31, 2021 |
| | 30 - 59 Days Delinquent | | 60 - 89 Days Delinquent | | Seriously Delinquent(1) | | Total Delinquent | | Current | | Total | | Loans 90 Days or More Delinquent and Accruing Interest | | Nonaccrual Loans with No Allowance |
| | | (Dollars in millions) |
| Single-family: | | | | | | | | | | | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $ | 17,400 | | | $ | 7,024 | | | $ | 79,349 | | | $ | 103,773 | | | $ | 2,688,967 | | | $ | 2,792,740 | | | $ | 51,671 | | | $ | 6,461 | |
| 15-year or less, amortizing fixed-rate | | 1,742 | | | 492 | | | 4,275 | | | 6,509 | | | 475,960 | | | 482,469 | | | 3,424 | | | 210 | |
| Adjustable-rate | | 180 | | | 63 | | | 993 | | | 1,236 | | | 26,549 | | | 27,785 | | | 735 | | | 116 | |
Other(2) | | 801 | | | 317 | | | 4,494 | | | 5,612 | | | 45,188 | | | 50,800 | | | 2,132 | | | 860 | |
| Total single-family | | 20,123 | | | 7,896 | | | 89,111 | | | 117,130 | | | 3,236,664 | | | 3,353,794 | | | 57,962 | | | 7,647 | |
Multifamily(3) | | 1,495 | | | N/A | | 2,531 | | | 4,026 | | | 387,841 | | | 391,867 | | | 404 | | | 183 | |
| Total | | $ | 21,618 | | | $ | 7,896 | | | $ | 91,642 | | | $ | 121,156 | | | $ | 3,624,505 | | | $ | 3,745,661 | | | $ | 58,366 | | | $ | 7,830 | |
| | | | | As of December 31, 2020 | | | As of December 31, 2021 |
| | 30 - 59 Days Delinquent | | 60 - 89 Days Delinquent | | Seriously Delinquent(1) | | Total Delinquent | | Current | | Total | | Loans 90 Days or More Delinquent and Accruing Interest | | Nonaccrual Loans with No Allowance | | | 30 - 59 Days Delinquent | | 60 - 89 Days Delinquent | | Seriously Delinquent(1) | | Total Delinquent | | Current | | Total | | Loans 90 Days or More Delinquent and Accruing Interest | | Nonaccrual Loans with No Allowance | |
| | | | (Dollars in millions) | | | (Dollars in millions) |
| Single-family: | Single-family: | | | Single-family: | | |
| 20- and 30-year or more, amortizing fixed-rate | 20- and 30-year or more, amortizing fixed-rate | | $ | 24,928 | | | $ | 9,414 | | | $ | 88,276 | | | $ | 122,618 | | | $ | 2,619,585 | | | $ | 2,742,203 | | | $ | 68,526 | | | $ | 6,028 | | | 20- and 30-year or more, amortizing fixed-rate | | $ | 22,862 | | | $ | 5,192 | | | $ | 38,288 | | | $ | 66,342 | | | $ | 2,902,763 | | | $ | 2,969,105 | | | $ | 24,236 | | | $ | 6,271 | | |
| 15-year or less, amortizing fixed-rate | 15-year or less, amortizing fixed-rate | | 1,987 | | | 601 | | | 5,028 | | | 7,616 | | | 449,443 | | | 457,059 | | | 4,292 | | | 240 | | | 15-year or less, amortizing fixed-rate | | 2,024 | | | 326 | | | 1,799 | | | 4,149 | | | 529,278 | | | 533,427 | | | 1,454 | | | 193 | | |
| Adjustable-rate | Adjustable-rate | | 268 | | | 97 | | | 1,143 | | | 1,508 | | | 29,933 | | | 31,441 | | | 907 | | | 114 | | | Adjustable-rate | | 161 | | | 36 | | | 374 | | | 571 | | | 25,771 | | | 26,342 | | | 287 | | | 63 | | |
Other(2) | Other(2) | | 1,150 | | | 458 | | | 5,037 | | | 6,645 | | | 47,937 | | | 54,582 | | | 2,861 | | | 771 | | | Other(2) | | 786 | | | 204 | | | 1,942 | | | 2,932 | | | 35,013 | | | 37,945 | | | 1,008 | | | 545 | | |
| Total single-family | Total single-family | | 28,333 | | | 10,570 | | | 99,484 | | | 138,387 | | | 3,146,898 | | | 3,285,285 | | | 76,586 | | | 7,153 | | | Total single-family | | 25,833 | | | 5,758 | | | 42,403 | | | 73,994 | | | 3,492,825 | | | 3,566,819 | | | 26,985 | | | 7,072 | | |
Multifamily(3) | Multifamily(3) | | 1,140 | | | N/A | | 3,688 | | | 4,828 | | | 372,598 | | | 377,426 | | | 610 | | | 302 | | | Multifamily(3) | | 114 | | | N/A | | 1,693 | | | 1,807 | | | 404,398 | | | 406,205 | | | 317 | | | 107 | | |
| Total | Total | | $ | 29,473 | | | $ | 10,570 | | | $ | 103,172 | | | $ | 143,215 | | | $ | 3,519,496 | | | $ | 3,662,711 | | | $ | 77,196 | | | $ | 7,455 | | | Total | | $ | 25,947 | | | $ | 5,758 | | | $ | 44,096 | | | $ | 75,801 | | | $ | 3,897,223 | | | $ | 3,973,024 | | | $ | 27,302 | | | $ | 7,179 | | |
(1)Single-family seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process. Multifamily seriously delinquent loans are loans that are 60 days or more past due.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 83 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Mortgage Loans |
(2)Reverse mortgage loans included in “Other” are not aged due to their nature and are included in the current column.
(3)Multifamily loans 60-89 days delinquent are included in the seriously delinquent column.
| | | | | | | | |
| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 76 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Mortgage Loans |
Credit Quality Indicators
The following tables display the total amortized cost of our single-family HFI loans by class of financing receivable, year of origination and credit quality indicator, excluding loans for which we have elected the fair value option. The estimated mark-to-market loan-to-value (“LTV”) ratio is a primary factor we consider when estimating our allowance for loan losses for single-family loans. As LTV ratios increase, the borrower's equity in the home decreases, which may negatively affect the borrower's ability to refinance or to sell the property for an amount at or above the outstanding balance of the loan.
| | | | | As of March 31, 2021, by Year of Origination(1) | | | As of March 31, 2022, by Year of Origination(1) |
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total |
| | | | (Dollars in millions) | | | (Dollars in millions) |
Estimated mark-to-market LTV ratio:(2) | Estimated mark-to-market LTV ratio:(2) | | Estimated mark-to-market LTV ratio:(2) | |
| 20- and 30-year or more, amortizing fixed-rate: | 20- and 30-year or more, amortizing fixed-rate: | | 20- and 30-year or more, amortizing fixed-rate: | |
| Less than or equal to 80% | Less than or equal to 80% | | $ | 187,046 | | | $ | 848,710 | | | $ | 216,806 | | | $ | 124,252 | | | $ | 158,591 | | | $ | 885,994 | | | $ | 2,421,399 | | Less than or equal to 80% | | $ | 92,062 | | | $ | 878,578 | | | $ | 867,141 | | | $ | 165,154 | | | $ | 80,064 | | | $ | 730,193 | | | $ | 2,813,192 | |
| Greater than 80% and less than or equal to 90% | Greater than 80% and less than or equal to 90% | | 23,830 | | | 180,295 | | | 51,499 | | | 10,692 | | | 2,706 | | | 5,552 | | | 274,574 | | Greater than 80% and less than or equal to 90% | | 12,914 | | | 131,409 | | | 20,233 | | | 1,851 | | | 842 | | | 1,786 | | | 169,035 | |
| Greater than 90% and less than or equal to 100% | Greater than 90% and less than or equal to 100% | | 25,159 | | | 66,092 | | | 1,710 | | | 578 | | | 157 | | | 1,556 | | | 95,252 | | Greater than 90% and less than or equal to 100% | | 21,743 | | | 38,695 | | | 1,911 | | | 474 | | | 161 | | | 405 | | | 63,389 | |
| Greater than 100% | Greater than 100% | | 0 | | | 25 | | | 6 | | | 24 | | | 58 | | | 1,402 | | | 1,515 | | Greater than 100% | | — | | | 47 | | | 11 | | | 10 | | | 15 | | | 401 | | | 484 | |
| Total 20- and 30-year or more, amortizing fixed-rate | Total 20- and 30-year or more, amortizing fixed-rate | | 236,035 | | | 1,095,122 | | | 270,021 | | | 135,546 | | | 161,512 | | | 894,504 | | | 2,792,740 | | Total 20- and 30-year or more, amortizing fixed-rate | | 126,719 | | | 1,048,729 | | | 889,296 | | | 167,489 | | | 81,082 | | | 732,785 | | | 3,046,100 | |
| 15-year or less, amortizing fixed-rate: | 15-year or less, amortizing fixed-rate: | | 15-year or less, amortizing fixed-rate: | |
| Less than or equal to 80% | Less than or equal to 80% | | 48,003 | | | 187,390 | | | 35,975 | | | 13,779 | | | 28,112 | | | 161,802 | | | 475,061 | | Less than or equal to 80% | | 18,861 | | | 201,447 | | | 149,981 | | | 23,495 | | | 8,763 | | | 129,292 | | | 531,839 | |
| Greater than 80% and less than or equal to 90% | Greater than 80% and less than or equal to 90% | | 1,137 | | | 4,953 | | | 292 | | | 19 | | | 9 | | | 19 | | | 6,429 | | Greater than 80% and less than or equal to 90% | | 357 | | | 1,933 | | | 127 | | | 12 | | | 2 | | | 5 | | | 2,436 | |
| Greater than 90% and less than or equal to 100% | Greater than 90% and less than or equal to 100% | | 356 | | | 587 | | | 4 | | | 2 | | | 3 | | | 9 | | | 961 | | Greater than 90% and less than or equal to 100% | | 235 | | | 274 | | | 2 | | | — | | | 1 | | | 2 | | | 514 | |
| Greater than 100% | Greater than 100% | | 0 | | | 0 | | | 0 | | | 2 | | | 3 | | | 13 | | | 18 | | Greater than 100% | | — | | | — | | | — | | | — | | | — | | | 5 | | | 5 | |
| Total 15-year or less, amortizing fixed-rate | Total 15-year or less, amortizing fixed-rate | | 49,496 | | | 192,930 | | | 36,271 | | | 13,802 | | | 28,127 | | | 161,843 | | | 482,469 | | Total 15-year or less, amortizing fixed-rate | | 19,453 | | | 203,654 | | | 150,110 | | | 23,507 | | | 8,766 | | | 129,304 | | | 534,794 | |
| Adjustable-rate: | Adjustable-rate: | | Adjustable-rate: | |
| Less than or equal to 80% | Less than or equal to 80% | | 111 | | | 2,757 | | | 1,608 | | | 2,006 | | | 3,982 | | | 16,940 | | | 27,404 | | Less than or equal to 80% | | 812 | | | 6,736 | | | 2,116 | | | 969 | | | 1,098 | | | 13,825 | | | 25,556 | |
| Greater than 80% and less than or equal to 90% | Greater than 80% and less than or equal to 90% | | 11 | | | 189 | | | 79 | | | 35 | | | 15 | | | 13 | | | 342 | | Greater than 80% and less than or equal to 90% | | 71 | | | 416 | | | 16 | | | 3 | | | 4 | | | 3 | | | 513 | |
| Greater than 90% and less than or equal to 100% | Greater than 90% and less than or equal to 100% | | 6 | | | 29 | | | 2 | | | 0 | | | 0 | | | 1 | | | 38 | | Greater than 90% and less than or equal to 100% | | 52 | | | 68 | | | 1 | | | — | | | — | | | 1 | | | 122 | |
| Greater than 100% | Greater than 100% | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 1 | | Greater than 100% | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total adjustable-rate | Total adjustable-rate | | 128 | | | 2,975 | | | 1,689 | | | 2,041 | | | 3,997 | | | 16,955 | | | 27,785 | | Total adjustable-rate | | 935 | | | 7,220 | | | 2,133 | | | 972 | | | 1,102 | | | 13,829 | | | 26,191 | |
| Other: | Other: | | Other: | |
| Less than or equal to 80% | Less than or equal to 80% | | 0 | | | 0 | | | 39 | | | 318 | | | 779 | | | 34,761 | | | 35,897 | | Less than or equal to 80% | | — | | | — | | | — | | | 32 | | | 252 | | | 25,879 | | | 26,163 | |
| Greater than 80% and less than or equal to 90% | Greater than 80% and less than or equal to 90% | | 0 | | | 0 | | | 1 | | | 15 | | | 31 | | | 1,000 | | | 1,047 | | Greater than 80% and less than or equal to 90% | | — | | | — | | | — | | | — | | | 2 | | | 223 | | | 225 | |
| Greater than 90% and less than or equal to 100% | Greater than 90% and less than or equal to 100% | | 0 | | | 0 | | | 2 | | | 5 | | | 11 | | | 456 | | | 474 | | Greater than 90% and less than or equal to 100% | | — | | | — | | | — | | | — | | | 1 | | | 113 | | | 114 | |
| Greater than 100% | Greater than 100% | | 0 | | | 0 | | | 0 | | | 3 | | | 5 | | | 485 | | | 493 | | Greater than 100% | | — | | | — | | | — | | | — | | | 1 | | | 108 | | | 109 | |
| Total other | Total other | | 0 | | | 0 | | | 42 | | | 341 | | | 826 | | | 36,702 | | | 37,911 | | Total other | | — | | | — | | | — | | | 32 | | | 256 | | | 26,323 | | | 26,611 | |
| Total | Total | | $ | 285,659 | | | $ | 1,291,027 | | | $ | 308,023 | | | $ | 151,730 | | | $ | 194,462 | | | $ | 1,110,004 | | | $ | 3,340,905 | | Total | | $ | 147,107 | | | $ | 1,259,603 | | | $ | 1,041,539 | | | $ | 192,000 | | | $ | 91,206 | | | $ | 902,241 | | | $ | 3,633,696 | |
| Total for all classes by LTV ratio:(2) | Total for all classes by LTV ratio:(2) | | Total for all classes by LTV ratio:(2) | |
| Less than or equal to 80% | Less than or equal to 80% | | $ | 235,160 | | | $ | 1,038,857 | | | $ | 254,428 | | | $ | 140,355 | | | $ | 191,464 | | | $ | 1,099,497 | | | $ | 2,959,761 | | Less than or equal to 80% | | $ | 111,735 | | | $ | 1,086,761 | | | $ | 1,019,238 | | | $ | 189,650 | | | $ | 90,177 | | | $ | 899,189 | | | $ | 3,396,750 | |
| Greater than 80% and less than or equal to 90% | Greater than 80% and less than or equal to 90% | | 24,978 | | | 185,437 | | | 51,871 | | | 10,761 | | | 2,761 | | | 6,584 | | | 282,392 | | Greater than 80% and less than or equal to 90% | | 13,342 | | | 133,758 | | | 20,376 | | | 1,866 | | | 850 | | | 2,017 | | | 172,209 | |
| Greater than 90% and less than or equal to 100% | Greater than 90% and less than or equal to 100% | | 25,521 | | | 66,708 | | | 1,718 | | | 585 | | | 171 | | | 2,022 | | | 96,725 | | Greater than 90% and less than or equal to 100% | | 22,030 | | | 39,037 | | | 1,914 | | | 474 | | | 163 | | | 521 | | | 64,139 | |
| Greater than 100% | Greater than 100% | | 0 | | | 25 | | | 6 | | | 29 | | | 66 | | | 1,901 | | | 2,027 | | Greater than 100% | | — | | | 47 | | | 11 | | | 10 | | | 16 | | | 514 | | | 598 | |
| Total | Total | | $ | 285,659 | | | $ | 1,291,027 | | | $ | 308,023 | | | $ | 151,730 | | | $ | 194,462 | | | $ | 1,110,004 | | | $ | 3,340,905 | | Total | | $ | 147,107 | | | $ | 1,259,603 | | | $ | 1,041,539 | | | $ | 192,000 | | | $ | 91,206 | | | $ | 902,241 | | | $ | 3,633,696 | |
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 8477 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Mortgage Loans |
| | | As of December 31, 2020, by Year of Origination(1) | | As of December 31, 2021, by Year of Origination(1) |
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total |
| | (Dollars in millions) | | (Dollars in millions) |
Estimated mark-to-market LTV ratio:(2) | Estimated mark-to-market LTV ratio:(2) | | Estimated mark-to-market LTV ratio:(2) | |
| 20- and 30-year or more, amortizing fixed-rate: | 20- and 30-year or more, amortizing fixed-rate: | | 20- and 30-year or more, amortizing fixed-rate: | |
| Less than or equal to 80% | Less than or equal to 80% | | $ | 794,156 | | | $ | 233,994 | | | $ | 135,849 | | | $ | 183,315 | | | $ | 221,172 | | | $ | 775,636 | | | $ | 2,344,122 | | Less than or equal to 80% | | $ | 798,830 | | | $ | 881,290 | | | $ | 177,909 | | | $ | 87,825 | | | $ | 111,059 | | | $ | 666,327 | | | $ | 2,723,240 | |
| Greater than 80% and less than or equal to 90% | Greater than 80% and less than or equal to 90% | | 157,500 | | | 85,227 | | | 23,440 | | | 5,270 | | | 1,592 | | | 5,958 | | | 278,987 | | Greater than 80% and less than or equal to 90% | | 129,340 | | | 39,689 | | | 2,689 | | | 1,056 | | | 622 | | | 1,687 | | | 175,083 | |
| Greater than 90% and less than or equal to 100% | Greater than 90% and less than or equal to 100% | | 109,743 | | | 4,186 | | | 820 | | | 250 | | | 124 | | | 1,994 | | | 117,117 | | Greater than 90% and less than or equal to 100% | | 66,667 | | | 2,278 | | | 544 | | | 229 | | | 57 | | | 460 | | | 70,235 | |
| Greater than 100% | Greater than 100% | | 28 | | | 7 | | | 28 | | | 77 | | | 81 | | | 1,756 | | | 1,977 | | Greater than 100% | | 21 | | | 12 | | | 9 | | | 16 | | | 22 | | | 467 | | | 547 | |
| Total 20- and 30-year or more, amortizing fixed-rate | Total 20- and 30-year or more, amortizing fixed-rate | | 1,061,427 | | | 323,414 | | | 160,137 | | | 188,912 | | | 222,969 | | | 785,344 | | | 2,742,203 | | Total 20- and 30-year or more, amortizing fixed-rate | | 994,858 | | | 923,269 | | | 181,151 | | | 89,126 | | | 111,760 | | | 668,941 | | | 2,969,105 | |
| 15-year or less, amortizing fixed-rate: | 15-year or less, amortizing fixed-rate: | | 15-year or less, amortizing fixed-rate: | |
| Less than or equal to 80% | Less than or equal to 80% | | 181,418 | | | 41,374 | | | 15,768 | | | 31,497 | | | 46,088 | | | 132,596 | | | 448,741 | | Less than or equal to 80% | | 196,163 | | | 157,076 | | | 25,390 | | | 9,595 | | | 20,715 | | | 121,027 | | | 529,966 | |
| Greater than 80% and less than or equal to 90% | Greater than 80% and less than or equal to 90% | | 6,105 | | | 811 | | | 35 | | | 14 | | | 8 | | | 20 | | | 6,993 | | Greater than 80% and less than or equal to 90% | | 2,576 | | | 259 | | | 16 | | | 4 | | | 2 | | | 7 | | | 2,864 | |
| Greater than 90% and less than or equal to 100% | Greater than 90% and less than or equal to 100% | | 1,274 | | | 9 | | | 3 | | | 4 | | | 3 | | | 10 | | | 1,303 | | Greater than 90% and less than or equal to 100% | | 579 | | | 5 | | | — | | | 1 | | | 1 | | | 4 | | | 590 | |
| Greater than 100% | Greater than 100% | | 0 | | | 0 | | | 3 | | | 3 | | | 3 | | | 13 | | | 22 | | Greater than 100% | | — | | | — | | | — | | | — | | | 2 | | | 5 | | | 7 | |
| Total 15-year or less, amortizing fixed-rate | Total 15-year or less, amortizing fixed-rate | | 188,797 | | | 42,194 | | | 15,809 | | | 31,518 | | | 46,102 | | | 132,639 | | | 457,059 | | Total 15-year or less, amortizing fixed-rate | | 199,318 | | | 157,340 | | | 25,406 | | | 9,600 | | | 20,720 | | | 121,043 | | | 533,427 | |
| Adjustable-rate: | Adjustable-rate: | | Adjustable-rate: | |
| Less than or equal to 80% | Less than or equal to 80% | | 2,935 | | | 1,839 | | | 2,412 | | | 4,765 | | | 2,678 | | | 16,248 | | | 30,877 | | Less than or equal to 80% | | 6,166 | | | 2,235 | | | 1,065 | | | 1,236 | | | 2,524 | | | 12,501 | | | 25,727 | |
| Greater than 80% and less than or equal to 90% | Greater than 80% and less than or equal to 90% | | 234 | | | 152 | | | 79 | | | 19 | | | 5 | | | 12 | | | 501 | | Greater than 80% and less than or equal to 90% | | 438 | | | 25 | | | 7 | | | 4 | | | 2 | | | 3 | | | 479 | |
| Greater than 90% and less than or equal to 100% | Greater than 90% and less than or equal to 100% | | 56 | | | 3 | | | 1 | | | 0 | | | 0 | | | 2 | | | 62 | | Greater than 90% and less than or equal to 100% | | 135 | | | 1 | | | — | | | — | | | — | | | — | | | 136 | |
| Greater than 100% | Greater than 100% | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 1 | | Greater than 100% | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total adjustable-rate | Total adjustable-rate | | 3,225 | | | 1,994 | | | 2,492 | | | 4,784 | | | 2,683 | | | 16,263 | | | 31,441 | | Total adjustable-rate | | 6,739 | | | 2,261 | | | 1,072 | | | 1,240 | | | 2,526 | | | 12,504 | | | 26,342 | |
| Other: | Other: | | Other: | |
| Less than or equal to 80% | Less than or equal to 80% | | 0 | | | 41 | | | 328 | | | 811 | | | 1,028 | | | 36,216 | | | 38,424 | | Less than or equal to 80% | | — | | | — | | | 34 | | | 268 | | | 655 | | | 26,930 | | | 27,887 | |
| Greater than 80% and less than or equal to 90% | Greater than 80% and less than or equal to 90% | | 0 | | | 2 | | | 20 | | | 43 | | | 30 | | | 1,298 | | | 1,393 | | Greater than 80% and less than or equal to 90% | | — | | | — | | | — | | | 3 | | | 6 | | | 275 | | | 284 | |
| Greater than 90% and less than or equal to 100% | Greater than 90% and less than or equal to 100% | | 0 | | | 2 | | | 8 | | | 16 | | | 10 | | | 602 | | | 638 | | Greater than 90% and less than or equal to 100% | | — | | | — | | | — | | | 1 | | | 2 | | | 133 | | | 136 | |
| Greater than 100% | Greater than 100% | | 0 | | | 0 | | | 4 | | | 8 | | | 9 | | | 631 | | | 652 | | Greater than 100% | | — | | | — | | | — | | | 1 | | | 1 | | | 141 | | | 143 | |
| Total other | Total other | | 0 | | | 45 | | | 360 | | | 878 | | | 1,077 | | | 38,747 | | | 41,107 | | Total other | | — | | | — | | | 34 | | | 273 | | | 664 | | | 27,479 | | | 28,450 | |
| Total | Total | | $ | 1,253,449 | | | $ | 367,647 | | | $ | 178,798 | | | $ | 226,092 | | | $ | 272,831 | | | $ | 972,993 | | | $ | 3,271,810 | | Total | | $ | 1,200,915 | | | $ | 1,082,870 | | | $ | 207,663 | | | $ | 100,239 | | | $ | 135,670 | | | $ | 829,967 | | | $ | 3,557,324 | |
| Total for all classes by LTV ratio:(2) | Total for all classes by LTV ratio:(2) | | Total for all classes by LTV ratio:(2) | |
| Less than or equal to 80% | Less than or equal to 80% | | $ | 978,509 | | | $ | 277,248 | | | $ | 154,357 | | | $ | 220,388 | | | $ | 270,966 | | | $ | 960,696 | | | $ | 2,862,164 | | Less than or equal to 80% | | $ | 1,001,159 | | | $ | 1,040,601 | | | $ | 204,398 | | | $ | 98,924 | | | $ | 134,953 | | | $ | 826,785 | | | $ | 3,306,820 | |
| Greater than 80% and less than or equal to 90% | Greater than 80% and less than or equal to 90% | | 163,839 | | | 86,192 | | | 23,574 | | | 5,346 | | | 1,635 | | | 7,288 | | | 287,874 | | Greater than 80% and less than or equal to 90% | | 132,354 | | | 39,973 | | | 2,712 | | | 1,067 | | | 632 | | | 1,972 | | | 178,710 | |
| Greater than 90% and less than or equal to 100% | Greater than 90% and less than or equal to 100% | | 111,073 | | | 4,200 | | | 832 | | | 270 | | | 137 | | | 2,608 | | | 119,120 | | Greater than 90% and less than or equal to 100% | | 67,381 | | | 2,284 | | | 544 | | | 231 | | | 60 | | | 597 | | | 71,097 | |
| Greater than 100% | Greater than 100% | | 28 | | | 7 | | | 35 | | | 88 | | | 93 | | | 2,401 | | | 2,652 | | Greater than 100% | | 21 | | | 12 | | | 9 | | | 17 | | | 25 | | | 613 | | | 697 | |
| Total | Total | | $ | 1,253,449 | | | $ | 367,647 | | | $ | 178,798 | | | $ | 226,092 | | | $ | 272,831 | | | $ | 972,993 | | | $ | 3,271,810 | | Total | | $ | 1,200,915 | | | $ | 1,082,870 | | | $ | 207,663 | | | $ | 100,239 | | | $ | 135,670 | | | $ | 829,967 | | | $ | 3,557,324 | |
(1)Excludes $12.9$9.2 billion and $13.5$9.5 billion as of March 31, 20212022 and December 31, 2020,2021, respectively, of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies, which represents primarily reverse mortgages for which we do not calculate an estimated mark-to-market LTV ratio.
(2)The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan divided by the estimated current value of the property as of the end of each reported period, which we calculate using an internal valuation model that estimates periodic changes in home value.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 8578 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Mortgage Loans |
The following tables display the total amortized cost inof our multifamily HFI loans by year of origination and credit-risk rating, excluding loans for which we have elected the fair value option. Property rental income and property valuations are key inputs to our internally assigned credit risk ratings.
| | | As of March 31, 2021, by Year of Origination | | As of March 31, 2022, by Year of Origination |
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total |
| | (Dollars in millions) | | (Dollars in millions) |
| Internally assigned credit risk rating: | Internally assigned credit risk rating: | | Internally assigned credit risk rating: | |
Non-classified(1) | Non-classified(1) | | $ | 11,295 | | | $ | 81,647 | | | $ | 67,630 | | | $ | 61,280 | | | $ | 49,903 | | | $ | 108,429 | | | $ | 380,184 | | Non-classified(1) | | $ | 7,429 | | | $ | 66,972 | | | $ | 78,830 | | | $ | 62,884 | | | $ | 53,920 | | | $ | 124,949 | | | $ | 394,984 | |
Classified(2) | Classified(2) | | 0 | | | 204 | | | 1,185 | | | 1,673 | | | 2,882 | | | 5,739 | | | 11,683 | | Classified(2) | | — | | | 98 | | | 473 | | | 2,570 | | | 2,311 | | | 12,031 | | | 17,483 | |
| Total | Total | | $ | 11,295 | | | $ | 81,851 | | | $ | 68,815 | | | $ | 62,953 | | | $ | 52,785 | | | $ | 114,168 | | | $ | 391,867 | | Total | | $ | 7,429 | | | $ | 67,070 | | | $ | 79,303 | | | $ | 65,454 | | | $ | 56,231 | | | $ | 136,980 | | | $ | 412,467 | |
| | | As of December 31, 2020, by Year of Origination | | As of December 31, 2021, by Year of Origination |
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total |
| | (Dollars in millions) | | (Dollars in millions) |
| Internally assigned credit risk rating: | Internally assigned credit risk rating: | | Internally assigned credit risk rating: | |
Non-classified(1) | Non-classified(1) | | $ | 71,977 | | | $ | 68,296 | | | $ | 62,087 | | | $ | 50,907 | | | $ | 43,174 | | | $ | 70,933 | | | $ | 367,374 | | Non-classified(1) | | $ | 58,986 | | | $ | 79,602 | | | $ | 64,278 | | | $ | 55,552 | | | $ | 44,037 | | | $ | 87,549 | | | $ | 390,004 | |
Classified(2) | Classified(2) | | 37 | | | 1,041 | | | 1,529 | | | 2,616 | | | 1,579 | | | 3,250 | | | 10,052 | | Classified(2) | | 21 | | | 595 | | | 2,288 | | | 2,114 | | | 4,091 | | | 7,092 | | | 16,201 | |
| Total | Total | | $ | 72,014 | | | $ | 69,337 | | | $ | 63,616 | | | $ | 53,523 | | | $ | 44,753 | | | $ | 74,183 | | | $ | 377,426 | | Total | | $ | 59,007 | | | $ | 80,197 | | | $ | 66,566 | | | $ | 57,666 | | | $ | 48,128 | | | $ | 94,641 | | | $ | 406,205 | |
(1)A loan categorized as “Non-classified” is current or adequately protected by the current financial strength and debt service capability of the borrower.
(2)Represents loans classified as “Substandard” or “Doubtful.” Loans classified as “Substandard” have a well-defined weakness that jeopardizes the timely full repayment. “Doubtful” refers to a loan with a weakness that makes collection or liquidation in full highly questionable and improbable based on existing conditions and values. AsWe had no loans classified as doubtful as of March 31, 20212022 and December 31, 2020, we had loans with an amortized cost of $4 million and less than $1 million respectively, classified as doubtful.doubtful as of December 31, 2021.
Troubled Debt RestructuringsLoss Mitigation Options for Borrowers Experiencing Financial Difficulty
A modificationAs part of our loss mitigation activities, we may agree to modify 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”).difficulty. In addition to formal loan modifications, we also engage inprovide other loss mitigation activities with troubled borrowers, which include repayment plans and forbearance arrangements, both of which represent informal agreements with the borrower that do not result in the legal modification of the loan’s contractual terms. We account for these informal restructurings as a TDR if we defer more than three missed payments. We also classify loansoptions to certainassist borrowers who have received bankruptcy relief as TDRs. However, our current TDR accounting described herein is temporarily impacted by our electionexperience financial difficulties.
Our disclosures below relating to account for certain eligible loss mitigation activities underinclude loan restructurings where the COVID-19 Relief granted pursuantborrower was experiencing financial difficulty, including those restructurings that resulted in an insignificant payment delay. The disclosures exclude loans classified as held for sale and those for which we have elected the fair value option.
Single-Family Loan Restructurings
We offer several types of restructurings to the CARES Act and the Consolidated Appropriations Act of 2021. See “Note 1, Summary of Significant Accounting Policies” in our 2020 Form 10-K for more information on the relief from TDR accounting and disclosure requirements.
The substantial majority of the loan modifications accounted for as a TDRsingle-family borrowers that may result in term extensions, interest rate reductions or a combination of both. During the three months ended March 31, 2021 and 2020, the average term extension of a single-family modified loan was 138 months and 168 months, respectively, and the averagepayment delay, interest rate reduction, was 0.52term extension, or combination thereof. We do not typically offer principal forgiveness.
We offer the following types of restructurings to single-family borrowers that only result in a payment delay:
•a forbearance plan is a short-term loss mitigation option which grants a period of time (typically 3-month increments) during which the borrower’s monthly payment obligations are reduced or suspended. A forbearance plan does not impact our reporting of when a loan is considered past due, which remains based on the contractual terms of the loan. Borrowers may exit a forbearance plan by repaying all past due amounts to fully reinstate the loan, paying off the loan in full, or entering into another loss mitigation option, such as a repayment plan, a payment deferral, or a loan modification. The vast majority of forbearance plans offered since 2020 relate to a COVID-19-related financial hardship where we have authorized our servicers to offer a forbearance plan for up to 18 months for eligible borrowers;
•a repayment plan is a short-term loss mitigation option that allows borrowers a specific period of time to return the loan to current status by paying the regular monthly payment plus additional agreed upon delinquent amounts (generally for a period up to 12 months and 0.32 percentage points, respectively.the monthly repayment plan amount must not exceed 150% of the contractual mortgage payment). A repayment plan does not impact our reporting of when a loan is considered past due, which remains based on the contractual terms of the loan. At the end of the repayment plan, the borrower resumes making the regular monthly payment; and
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 8679 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Mortgage Loans |
•a payment deferral is a loss mitigation option which defers the repayment of the delinquent principal and interest payments and other eligible default-related amounts that were advanced on behalf of the borrower by converting them into a non-interest-bearing balance due at the earlier of the payoff date, the maturity date, or sale or transfer of the property. The remaining mortgage terms, interest rate, payment schedule, and maturity date remain unchanged, and no trial period is required. The number of months of payments deferred varies based on the types of hardships the borrower is facing.
We also offer single-family borrowers loan modifications, which contractually change the terms of the loan. These loan modifications may include one or more of the following types of concessions:
•an interest rate reduction, which reduces the contractual interest rate of the loan;
•a term extension, which typically extends the contractual maturity date of the loan to 40 years from the effective date of the modification; or
•a payment delay, which includes capitalizing interest and other eligible default-related amounts that were advanced on behalf of the borrower that are past due into the unpaid principal balance. A payment delay may also include principal forbearance, which includes forbearing repayment of a portion of the principal balance as a non-interest bearing amount due at the earlier of the payoff date, the maturity date, or sale or transfer of the property.
Our loan modification programs generally require completion of a trial period of three to four months where the borrower makes reduced monthly payments prior to receiving the modification. During the trial period, the mortgage loan is not contractually modified and continues to be reported as past due according to its contractual terms. The reduced payments that are made by the borrower during the trial period will result in a payment delay with respect to the original contractual terms of the loan. After successful completion of the trial period, and the borrower’s execution of a modification agreement, the mortgage loan is contractually modified.
Multifamily Loan Restructurings
For multifamily borrowers, loan restructurings include short-term forbearance plans and loan modification programs, which primarily result in term extensions of up to one year with no change to the loan’s interest rate. In certain cases, we may make more significant modifications of terms for borrowers experiencing financial difficulty, such as reducing the interest rate, converting to interest-only payments, extending the maturity for longer than one year, providing principal forbearance, or some combination of these terms.
| | | | | | | | |
| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 80 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Mortgage Loans |
Restructurings for Borrowers Experiencing Financial Difficulty
The following table displays the amortized cost of HFI mortgage loans that were restructured during the period by portfolio segment and class of financing receivable as of March 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | For the Three Months Ended March 31, 2022 |
| | Payment Delay (Only) | | | | | | | | | | | | |
| | Forbearance and Repayment Plans | | Trial Modification | | Payment Deferral | | Payment Delay and Term Extension(1) | | Payment Delay, Term Extension and Interest Rate Reduction(1) | | | Total | | Percentage of Total by Financing Class(2) |
| | | | | | | | | | | | | | | | | | |
| | (Dollars in millions) |
| Single-family: | | | | | | | | | | | | | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $ | 16,140 | | | $ | 5,380 | | | $ | 6,784 | | | | $ | 1,103 | | | | $ | 4,547 | | | | | $ | 33,954 | | | 1 | % |
| 15-year or less, amortizing fixed-rate | | 831 | | | 211 | | | 394 | | | | — | | | | 1 | | | | | 1,437 | | | * |
| Adjustable-rate | | 100 | | | 51 | | | 57 | | | | — | | | | 5 | | | | | 213 | | | 1 | |
| Other | | 399 | | | 224 | | | 197 | | | | 93 | | | | 226 | | | | | 1,139 | | | 3 | |
| Total single-family | | 17,470 | | | 5,866 | | | 7,432 | | | | 1,196 | | | | 4,779 | | | | | 36,743 | | | 1 | |
| Multifamily | | 267 | | | — | | | — | | | | 29 | | | | — | | | | | 296 | | | * |
Total(3) | | $ | 17,737 | | | $ | 5,866 | | | $ | 7,432 | | | | $ | 1,225 | | | | $ | 4,779 | | | | | $ | 37,039 | | | 1 | |
* Represents less than 0.5% of total by financing class.
(1) Represents loans that received a contractual modification.
(2) Based on the amortized cost basis as of period end, divided by the period end amortized cost basis of the corresponding class of financing receivable.
(3) Excludes loans that liquidated either through foreclosure, deed-in-lieu of foreclosure, or a short sale. Also excludes loans that paid off prior to period end. Loans may move from one category to another, as a result of the restructuring(s) they received during the period.
Our estimate of future credit losses uses a lifetime methodology, derived from modeled loan performance based on the historical experience of loans with similar risk characteristics, adjusted to reflect current conditions, our current loss mitigation activities and reasonable and supportable forecasts. The credit loss model considers extensive historical loss experience, which would include the impact of the loss mitigation programs that we offer to borrowers experiencing financial difficulty, and also includes the impact of projected loss severities as a result of loan default. The manner in which these loss mitigation programs are factored into our loss estimates do not vary by portfolio segment.
The following table summarizes the financial impacts of loan modifications and payment deferrals made to single-family HFI loans on or after January 1, 2022, the date we adopted ASU 2022-02, through March 31, 2022, presented by class of financing receivable. We discuss the qualitative impacts of forbearance plans, repayment plans, and trial modifications earlier in this footnote. As a result, those loss mitigation options are excluded from the table below.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, 2022 |
| | Weighted-Average Interest Rate Reduction | | | | Weighted-Average Term Extension
(in Months) | | | | Average Amount Capitalized as a Result of a Payment Delay(1) |
| | |
Loan by class of financing receivable(2): | | | | | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | 1.59 | % | | | | 178 | | | | $ | 23,146 | |
| 15-year or less, amortizing fixed-rate | | 0.88 | | | | | 52 | | | | 20,664 | |
| Adjustable-rate | | 0.22 | | | | | — | | | | | 24,838 | |
| Other | | 1.62 | | | | | 186 | | | | 24,759 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
(1) Represents the average amount of delinquency-related amounts that were capitalized as part of the loan balance. Amounts are in whole dollars.
(2) Excludes the financial effects of modifications for loans that were paid off or otherwise liquidated as of period end.
| | | | | | | | |
| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 81 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Mortgage Loans |
The following table displays an aging analysis of HFI mortgage loans that entered into a forbearance plan, repayment plan or trial modification on or after January 1, 2022, the date we adopted ASU 2022-02, through March 31, 2022 and remained in one of these loss mitigation options at period end, presented by portfolio segment and class of financing receivable. Loans that receive these loss mitigation options generally remain in default until the loan is no longer delinquent as a result of the payment of all past-due amounts or as a result of a loan modification or payment deferral.
The substantial majority of loans that received a completed modification or payment deferral during the first quarter of 2022 were not in a payment default. Therefore, such restructurings are not included in the aging table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2022 |
| | 30-59 Days Delinquent | | 60-89 Days Delinquent(1) | | Seriously Delinquent | | Total Delinquent | | Current | | Total |
| | (Dollars in millions) |
| Single-family: | | | | | | | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $ | 1,765 | | | $ | 2,048 | | | $ | 16,040 | | | $ | 19,853 | | | $ | 1,667 | | | $ | 21,520 | |
| 15-year or less, amortizing fixed-rate | | 98 | | | 108 | | | 715 | | | 921 | | | 121 | | | 1,042 | |
| Adjustable-rate | | 8 | | | 9 | | | 119 | | | 136 | | | 15 | | | 151 | |
| Other | | 35 | | | 42 | | | 507 | | | 584 | | | 39 | | | 623 | |
| Total single-family loans modified | | 1,906 | | | 2,207 | | | 17,381 | | | 21,494 | | | 1,842 | | | 23,336 | |
| Multifamily | | — | | | N/A | | 243 | | | 243 | | | 24 | | | 267 | |
Total loans restructured(2) | | $ | 1,906 | | | $ | 2,207 | | | $ | 17,624 | | | $ | 21,737 | | | $ | 1,866 | | | $ | 23,603 | |
(1) Multifamily loans 60-89 days delinquent are included in the seriously delinquent column.
(2) Represents the amortized cost basis as of period end.
Troubled Debt Restructuring Disclosures Prior to Our Adoption of ASU 2022-02
Prior to our adoption of ASU 2022-02, we accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. In addition to formal loan modifications, we accounted for informal restructurings as a TDR if we deferred more than three missed payments to a borrower experiencing financial difficulty. We also classified bankruptcy relief provided to certain borrowers as TDRs. However, our TDR accounting described herein was suspended for most of our loss mitigation activities through our election to account for certain eligible loss mitigation activities occurring between March 2020 and January 1, 2022 under the COVID-19 relief granted pursuant to the CARES Act and the Consolidated Appropriations Act of 2021. On January 1, 2022, we adopted ASU 2022-02, which eliminated TDR accounting prospectively for all restructurings occurring on or after January 1, 2022. Loans that were restructured in a TDR prior to the adoption of ASU 2022-02 will continue to be accounted for under the historical TDR accounting until the loan is paid off, liquidated or subsequently modified. See “Note 1, Summary of Significant Accounting Policies” in our 2021 Form 10-K for more information on the COVID-19 relief from TDR accounting and disclosure requirements, and “Note 1, Summary of Significant Accounting Policies” in this report for more information on our adoption of ASU 2022-02.
The substantial majority of the loan modifications accounted for as TDRs resulted from a payment delay, term extension, interest rate reduction or a combination thereof. The average term extension of a single-family modified loan was 138 months and the average interest rate reduction was 0.52 percentage points for the three months ended March 31, 2021.
| | | | | | | | |
| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 82 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Mortgage Loans |
The following table displays the number of loans and amortized cost of loans classified as a TDR during the period.
| | | For the Three Months Ended March 31, | | | | | | | | | | | | |
| | 2021 | 2020 | | For the Three Months Ended March 31, 2021 |
| | | Number of Loans | | Amortized Cost | | Number of Loans | | Amortized Cost | | Number of Loans | | Amortized Cost |
| | (Dollars in millions) | | (Dollars in millions) |
| Single-family: | Single-family: | | Single-family: | |
| 20- and 30-year or more, amortizing fixed-rate | 20- and 30-year or more, amortizing fixed-rate | | 2,989 | | | $ | 471 | | | 10,856 | | | $ | 1,909 | | 20- and 30-year or more, amortizing fixed-rate | | 2,989 | | | $ | 471 | |
| 15-year or less, amortizing fixed-rate | 15-year or less, amortizing fixed-rate | | 369 | | | 28 | | | 1,073 | | | 98 | | 15-year or less, amortizing fixed-rate | | 369 | | | 28 | |
| Adjustable-rate | Adjustable-rate | | 41 | | | 6 | | | 144 | | | 24 | | Adjustable-rate | | 41 | | | 6 | |
| Other | Other | | 154 | | | 18 | | | 537 | | | 68 | | Other | | 154 | | | 18 | |
| Total single-family | Total single-family | | 3,553 | | | 523 | | | 12,610 | | | 2,099 | | Total single-family | | 3,553 | | | 523 | |
| Multifamily | Multifamily | | 0 | | | 0 | | | 0 | | | 0 | | Multifamily | | — | | | — | |
| Total TDRs | Total TDRs | | 3,553 | | | $ | 523 | | | 12,610 | | | $ | 2,099 | | Total TDRs | | 3,553 | | | $ | 523 | |
For loans that defaulted in the periodperiods presented and that were classified as a TDR in the twelve months prior to the default, the following table displays the number of loans and the amortized cost of these loans at the time of payment default. For purposes of this disclosure, we definedefined loans that had a payment default as: single-family and multifamily loans with completed TDRsmodifications that liquidated during the period, either through foreclosure, deed-in-lieu of foreclosure, or a short sale; single-family loans with completed modifications that are two or more months delinquent during the period; or multifamily loans with completed modifications that are one or more months delinquent during the period.
| | | For the Three Months Ended March 31, | | | | | | | | | | | | |
| | 2021 | 2020 | | For the Three Months Ended March 31, 2021 |
| | Number of Loans | | Amortized Cost | | Number of Loans | | Amortized Cost | | Number of Loans | | Amortized Cost |
| | (Dollars in millions) | | (Dollars in millions) |
| Single-family: | Single-family: | | Single-family: | |
| 20- and 30-year or more, amortizing fixed-rate | 20- and 30-year or more, amortizing fixed-rate | | 7,172 | | | $ | 1,327 | | | 3,175 | | | $ | 521 | | 20- and 30-year or more, amortizing fixed-rate | | 7,172 | | | $ | 1,327 | |
| 15-year or less, amortizing fixed-rate | 15-year or less, amortizing fixed-rate | | 152 | | | 11 | | | 50 | | | 3 | | 15-year or less, amortizing fixed-rate | | 152 | | | 11 | |
| Adjustable-rate | Adjustable-rate | | 11 | | | 2 | | | 7 | | | 1 | | Adjustable-rate | | 11 | | | 2 | |
| Other | Other | | 633 | | | 112 | | | 327 | | | 51 | | Other | | 633 | | | 112 | |
| Total single-family | Total single-family | | 7,968 | | | 1,452 | | | 3,559 | | | 576 | | Total single-family | | 7,968 | | | 1,452 | |
| Multifamily | Multifamily | | 0 | | | 0 | | | 2 | | | 2 | | Multifamily | | — | | | — | |
| Total TDRs that subsequently defaulted | Total TDRs that subsequently defaulted | | 7,968 | | | $ | 1,452 | | | 3,561 | | | $ | 578 | | Total TDRs that subsequently defaulted | | 7,968 | | | $ | 1,452 | |
Nonaccrual Loans
For loans negatively impacted by the COVID-19 pandemic, we continue to recognize interest income for up to six months of delinquency provided that the loan was either current as of March 1, 2020 or originated after March 1, 2020. For single-family loans, we continue to accrue interest income beyond six months of delinquency provided that the collection of principal and interest continues to be reasonably assured. Multifamily loans that are in a forbearance arrangement are placed on nonaccrual status when the borrower is six months past due unless the loan is both well secured and in the process of collection. For single-family and multifamily loans in a forbearance arrangement that are placed on nonaccrual status, cash payments for interest are applied as a reduction of accrued interest receivable until the receivable has been reduced to zero, and then recognized as interest income. For loans that have been negatively impacted by COVID-19, we establish a valuation allowance for expected credit losses on the accrued interest receivable balance applying the process that we have established for both single-family and multifamily loans. The credit expense related to this valuation allowance is classified as a component of the provision for credit losses. Accrued interest receivable is written off when the amount is deemed to be uncollectible. Loans that are in active forbearance plans are not evaluated for write-off. For loans not subject to the COVID-19-related guidance, we have elected not to measure an allowance for credit losses on accrued interest receivable balances as we have a nonaccrual policy to ensure the timely reversal of unpaid accrued interest. See “Note 4, Allowance for Loan Losses” for additional information about our current-period provision for loan losses.
For loans not subject to the COVID-19-related nonaccrual policy we discontinue accruing interest when we believe collectability of principal and interest is not reasonably assured, which for a single-family loan we have determined,
| | | | | | | | |
| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 83 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Mortgage Loans |
based on our historical experience, to be when the loan becomes two months or more past due according to its contractual terms. Single-family and multifamily loans are reported past due if a full payment of principal and interest is not received within one month of its due date.
Interest income previously accrued but not collected on such loans is reversed through interest income at the date the loan is placed on nonaccrual status. For single-family loans on nonaccrual status, we recognize income when cash payments are received. We return a non-modified single-family loan to accrual status at the point when the borrower brings the loan current. We return
As a modifiedpart of our single-family loss mitigation activities, we restructure loans where the borrower is experiencing financial difficulty. For the purpose of income recognition, we require the borrower to complete a performance period for those loss mitigation arrangements that bring the loan current via the capitalization of the past due principal and interest (i.e., contractual modifications and payment deferrals). In that regard, our contractual modifications generally include a trial period (a performance period of generally 3 to 4 months) that the borrower has to complete before the loan is permanently modified. The loans that receive these contractual modifications are not returned to accrual status at the point whenuntil the borrower has successfully made all required payments during the trial period (generally three to four months) and the modification is made permanent. As payment deferrals do not include a trial period, these restructurings are not returned to accrual status until the borrower has made three consecutive contractual payments.If interest is capitalized pursuant to either a loan modification or a payment deferral, any capitalized interest that had not been previously recognized as interest income is recorded as a discount to the loan and amortized over the life of the loan.
We place a multifamily loan on nonaccrual status when the loan becomes two months or more past due according to its contractual terms unless the loan is well secured such that collectability of principal and accrued interest is reasonably assured. For multifamily loans on nonaccrual status, we apply any payment received on a cost recovery basis to reduce principal on the mortgage loan. We return a multifamily loan to accrual status when the borrower cures the delinquency of the loan. Single-family and multifamily loans are reported past due if a full payment of principal and interest is not received within one month of its due date.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 87 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Mortgage Loans |
For loans negatively impacted by the COVID-19 pandemic, we continue to recognize interest income at the current contractual yield for up to six months of delinquency provided that the loan was either current at March 1, 2020 or originated after March 1, 2020, and collection of principal and interest is reasonably assured. For single-family loans where we have provided relief beyond six months of delinquency, we continue to accrue interest income provided that the loan remains in a forbearance arrangement and collection of principal and interest continues to be reasonably assured. Multifamily loans that are in a forbearance arrangement are placed on nonaccrual status when the borrower is six months past due unless the loan is both well secured and in the process of collection. Loans that have been placed in a repayment plan or that have been brought current through a modification or a payment deferral are returned to accrual status once the borrower has made six consecutive contractual payments under the terms of the repayment plan or the modified loan. For loans in a forbearance arrangement that are placed on nonaccrual status, cash payments for interest are applied as a reduction of accrued interest receivable until the receivable has been reduced to zero, and then recognized as interest income. If a loan is modified, any capitalized interest that has not been previously recognized as interest income is recorded as a discount to the loan and amortized over the life of the loan. See “Note 1, Summary of Significant Accounting Policies” in our 2020 Form 10-K for more information on our nonaccrual policy, including a discussion of regulatory guidance on interest income issued in response to COVID-19, and additional information on our policies for determining if the collection of principal and interest is reasonably assured, as well as our policy for establishing a valuation allowance for expected credit losses on the accrued interest receivable balance for loans negatively impacted by COVID-19.
The table below displays the forgone interest and the accrued interest receivable written off through the reversal of interest income for nonaccrual loans.
| | | | | | | | | | | | | | | | |
| | | | For the Three Months Ended March 31, |
| | | | 2021 | | 2020 |
| | | (Dollars in millions) |
| Single-family: | | | | | | |
Interest income forgone(1) | | | | $ | 307 | | | $ | 182 | |
| Accrued interest receivable written off through the reversal of interest income | | | | 108 | | | 87 | |
| | | | | | |
| Multifamily: | | | | | | |
Interest income forgone(1) | | | | $ | 14 | | | $ | 1 | |
| Accrued interest receivable written off through the reversal of interest income | | | | 0 | | | 0 | |
(1)For loans on nonaccrual status held as of period end, represents the amount of interest income we did not recognize but would have recognized if the loans had performed in accordance with their original contractual terms. | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2022 | | 2021 |
| (Dollars in millions) |
| Accrued interest receivable written off through the reversal of interest income: | | | | |
| Single-family | | $ | 17 | | | $ | 108 | |
| Multifamily | | 1 | | | — | |
The tabletables below includesinclude the amortized cost of and interest income recognized on our HFI single-family and multifamily loans on nonaccrual status by class, excluding loans for which we have elected the fair value option.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of | | | | For the Three Months Ended March 31, |
| | March 31, 2021 | | | | December 31, 2020 | | | 2021 | | 2020 |
| | Amortized Cost | | | | Total Interest Income Recognized(1) |
| (Dollars in millions) |
| Single-family: | | | | | | | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $ | 30,173 | | | | | $ | 22,907 | | | | | $ | 64 | | | $ | 101 | |
| 15-year or less, amortizing fixed-rate | | 945 | | | | | 853 | | | | | 2 | | | 2 | |
| Adjustable-rate | | 284 | | | | | 270 | | | | | 1 | | | 1 | |
| Other | | 2,583 | | | | | 2,475 | | | | | 4 | | | 13 | |
| Total single-family | | 33,985 | | | | | 26,505 | | | | | 71 | | | 117 | |
| Multifamily | | 2,153 | | | | | 2,069 | | | | | 8 | | | 0 | |
| Total nonaccrual loans | | $ | 36,138 | | | | | $ | 28,574 | | | | | $ | 79 | | | $ | 117 | |
(1)Single-family interest income recognized includes amounts accrued while the loans were performing, including the amortization of any deferred cost basis adjustments, as well as payments received on nonaccrual loans for nonaccrual loans held as of period end. Multifamily interest income recognized includes amounts accrued while the loans were performing and the amortization of any deferred cost basis adjustments for nonaccrual loans held as of period end. | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of | | | | For the Three Months Ended March 31, |
| | March 31, 2022 | | | | December 31, 2021 | | | 2022 |
| | Amortized Cost | | | | Total Interest Income Recognized(1) |
|
| (Dollars in millions) |
| Single-family: | | | | | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $ | 13,692 | | | | | $ | 17,599 | | | | | $ | 47 | |
| 15-year or less, amortizing fixed-rate | | 331 | | | | | 430 | | | | | 1 | |
| Adjustable-rate | | 84 | | | | | 107 | | | | | — | |
| Other | | 913 | | | | | 1,101 | | | | | 3 | |
| Total single-family | | 15,020 | | | | | 19,237 | | | | | 51 | |
| Multifamily | | 1,258 | | | | | 1,259 | | | | | 5 | |
| Total nonaccrual loans | | $ | 16,278 | | | | | $ | 20,496 | | | | | $ | 56 | |
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 8884 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Allowance for Loan LossesMortgage Loans |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | As of | | | | For the Three Months Ended March 31, |
| | March 31, 2021 | | | | December 31, 2020 | | | 2021 |
| | Amortized Cost | | | | Total Interest Income Recognized(1) |
|
| (Dollars in millions) |
| Single-family: | | | | | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $ | 30,173 | | | | | $ | 22,907 | | | | | $ | 64 | |
| 15-year or less, amortizing fixed-rate | | 945 | | | | | 853 | | | | | 2 | |
| Adjustable-rate | | 284 | | | | | 270 | | | | | 1 | |
| Other | | 2,583 | | | | | 2,475 | | | | | 4 | |
| Total single-family | | 33,985 | | | | | 26,505 | | | | | 71 | |
| Multifamily | | 2,153 | | | | | 2,069 | | | | | 8 | |
| Total nonaccrual loans | | $ | 36,138 | | | | | $ | 28,574 | | | | | $ | 79 | |
(1)Interest income recognized includes amortization of any deferred cost basis adjustments while the loan is performing and that is not reversed when the loan is placed on nonaccrual status. For loans negatively impacted by the COVID-19 pandemic, also includes amounts accrued but not collected prior to the loan being placed on nonaccrual status. For single-family, interest income recognized includes payments received on nonaccrual loans held as of period end.
4. Allowance for Loan Losses
We maintain an allowance for loan losses for HFI loans held by Fannie Mae and by consolidated Fannie Mae MBS trusts, excluding loans for which we have elected the fair value option. When calculating our allowance for loan losses, we consider the unpaid principal balance, net of unamortized premiums and discounts, and other cost basis adjustments of HFI loans at the balance sheet date. We record write-offs as a reduction to our allowance for loan losses at the point of foreclosure, completion of a short sale, upon the redesignation of nonperforming and reperforming loans from HFI to HFS or when a loan is determined to be uncollectible.
| | | | | | | | |
| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 85 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Allowance for Loan Losses |
The following table displays changes in our allowance for single-family loans, multifamily loans and total allowance for loan losses, including the transition impact of adopting Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which was later amended by ASU 2019-04, ASU 2019-05 and ASU 2019-1 (collectively, the “CECL standard”), on January 1, 2020. See “Note 1, Summary of Significant Accounting Policies” in our 2020 Form 10-K for additional information on changes to our allowance for loan losses resulting from our adoption of the CECL standard.
losses. The benefit or provision for loan losses excludes provision for accrued interest receivable losses, guaranty loss reserves and credit losses on available-for-sale (“AFS”) debt securities. Cumulatively, these expensesamounts are recognized as “Benefit (provision) for credit losses” in our condensed consolidated statements of operations and comprehensive income.
| | | | | For the Three Months Ended March 31, | | | | For the Three Months Ended March 31, | |
| | | | 2021 | | 2020 | | | | 2022 | | 2021 | |
| | | (Dollars in millions) | | | | (Dollars in millions) | |
| Single-family allowance for loan losses: | Single-family allowance for loan losses: | | | Single-family allowance for loan losses: | | | |
| Beginning balance | Beginning balance | | | $ | (9,344) | | | $ | (8,759) | | | Beginning balance | | | $ | (4,950) | | | $ | (9,344) | | |
| Transition impact of the adoption of the CECL standard | | | — | | | (1,229) | | | |
| Benefit (provision) for loan losses | Benefit (provision) for loan losses | | | 671 | | | (2,177) | | | Benefit (provision) for loan losses | | | (282) | | | 671 | | |
| Write-offs | Write-offs | | | 71 | | | 70 | | | Write-offs | | | 27 | | | 71 | | |
| Recoveries | Recoveries | | | (2) | | | (3) | | | Recoveries | | | (33) | | | (2) | | |
| Other | Other | | | 57 | | | 28 | | | Other | | | (3) | | | 57 | | |
| Ending Balance | Ending Balance | | | $ | (8,547) | | | $ | (12,070) | | | Ending Balance | | | $ | (5,241) | | | $ | (8,547) | | |
| Multifamily allowance for loan losses: | Multifamily allowance for loan losses: | | | | | | | Multifamily allowance for loan losses: | | | | | | |
| Beginning balance | Beginning balance | | | $ | (1,208) | | | $ | (257) | | | Beginning balance | | | $ | (679) | | | $ | (1,208) | | |
| Transition impact of the adoption of the CECL standard | | | — | | | (493) | | | |
| Benefit (provision) for loan losses | | | 95 | | | (407) | | | |
| Benefit for loan losses | | Benefit for loan losses | | | 28 | | | 95 | | |
| Write-offs | Write-offs | | | 33 | | | 19 | | | Write-offs | | | — | | | 33 | | |
| Recoveries | Recoveries | | | (1) | | | (1) | | | Recoveries | | | (7) | | | (1) | | |
| | Ending Balance | Ending Balance | | | $ | (1,081) | | | $ | (1,139) | | | Ending Balance | | | $ | (658) | | | $ | (1,081) | | |
| Total allowance for loan losses: | Total allowance for loan losses: | | | | | | | Total allowance for loan losses: | | | | | | |
| Beginning balance | Beginning balance | | | $ | (10,552) | | | $ | (9,016) | | | Beginning balance | | | $ | (5,629) | | | $ | (10,552) | | |
| Transition impact of the adoption of the CECL standard | | | — | | | (1,722) | | | |
| Benefit (provision) for loan losses | Benefit (provision) for loan losses | | | 766 | | | (2,584) | | | Benefit (provision) for loan losses | | | (254) | | | 766 | | |
| Write-offs | Write-offs | | | 104 | | | 89 | | | Write-offs | | | 27 | | | 104 | | |
| Recoveries | Recoveries | | | (3) | | | (4) | | | Recoveries | | | (40) | | | (3) | | |
| Other | Other | | | 57 | | | 28 | | | Other | | | (3) | | | 57 | | |
| Ending Balance | Ending Balance | | | $ | (9,628) | | | $ | (13,209) | | | Ending Balance | | | $ | (5,899) | | | $ | (9,628) | | |
Our benefit or provision for loan losses can vary substantially from period to period based on a number of factors, such as changes in actual and forecasted home prices or property valuations, fluctuations in actual and forecasted interest rates, borrower payment behavior, events such as natural disasters or pandemics, the typestype, volume and volumeeffectiveness of our loss mitigation activities, including forbearanceforbearances and loan modifications, the volume of foreclosures completed, and the redesignation of loans from HFI to HFS. Our benefit or provision can also be impacted by updates to the models, assumptions, and data used in determining our allowance for loan losses.As described below,
In recent periods, changes in actual and projected interest rates have been a significant driver of our benefit or provision for loan losses as these changes drive prepayment speeds and our loss reserves have been significantly affected by our estimatesimpact the measurement of the impacteconomic concessions granted to borrowers on modified loans. However, pursuant to our adoption of ASU 2022-02 on January 1, 2022, we prospectively discontinued TDR accounting and no longer measure the COVID-19economic concession for restructurings occurring on or after the adoption date. This accounting will also result in the elimination of any existing economic concession related to a loan that was previously designated as a TDR if such loan is restructured on or after January 1, 2022. See "Note 1, Summary of Significant Accounting Policies—New Accounting Guidance" for more information about our adoption of ASU 2022-02.
The primary factors that contributed to our single-family provision for loan losses in the first quarter of 2022 were a provision for higher actual and projected interest rates partially offset by a benefit from the release of economic concessions.
•Actual and projected interest rates were higher as of March 31, 2022 compared with December 31, 2021. As mortgage rates increase, we expect a decrease in future prepayments on single-family loans, including modified loans accounted for as TDRs. Lower expected prepayments extend the expected lives of these TDR loans, which increases the expected impairment relating to economic concessions provided on them, resulting in a provision for loan losses.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 8986 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Allowance for Loan Losses |
pandemic, which require significant management judgment. Changes in our estimates•This was partially offset by a benefit from the release of borrowerseconomic concessions on loans previously designated as TDRs that will ultimately receive forbearance and even more significantly, thereceived loss mitigation outcomesarrangements during the quarter. As described above, pursuant to our adoption of affected borrowers afteraccounting guidance ASU 2022-02, we remove from our allowance the prior economic concession recorded on a loan previously designated as a TDR when the loan is modified or receives or extends a loss mitigation arrangement such as a forbearance period ends, remain uncertain and can affectplan, repayment plan or other loan workout during the amount of benefit or provision for loan losses we recognize.period.
TheThe primary factors that contributed to our single-family benefit for loan losses in the first quarter of 2021 were:
•Benefit from actual and expected home price growth. During the first quarter of 2021, home price growth was unseasonably strong. We also increased our expectations for home price growth on a national basis for full yearfull-year 2021. Higher home prices decrease the likelihood that loans will default and reduce the amount of credit loss on loans that do default, which impacts our estimate of losses and ultimately reduces our loss reserves and provision for loan losses.
•Benefit from the redesignation of certain reperforming single-family loans from HFI to HFS. After a temporary pause in sales of nonperforming and reperforming loans, we resumed our plans for sales late in the first quarter of 2021. As a result, weWe redesignated certain reperforming single-family loans from HFI to HFS, as we no longer intendintended to hold them for the foreseeable future or to maturity. Upon redesignation of these loans, we recorded the loans at the lower of cost or fair value with a write-off against the allowance for loan losses. Amounts recorded in the allowance related to these loans exceeded the amounts written off, resulting in a benefit for loan losses.
•Benefit from changes in assumptions regarding COVID-19 forbearance and change in actual and expected loan delinquencies.delinquencies. Management continuescontinued to apply its judgment and supplementsupplemented model results as of March 31, 2021, due to continued uncertainty regarding the loss mitigation outcomes of borrowers in forbearance, and uncertainty regarding the future impact of the pandemic, including the efficacy of the COVID-19 vaccines on new strains of the virus and its effect on the economy. Although uncertainty remains,remained, our expected loan losses as a result of the COVID-19 pandemic decreased in the first quarter of 2021, driven by the passage of the American Rescue Plan, which providesprovided additional economic stimulus and helpshelped support the continued economic recovery. In addition, decreased political uncertainty compared with the end of 2020 combined with the increased progression of the COVID-19 vaccines rollout lessened expectations of loan losses. Based on these factors in the first quarter of 2021, management used its judgment to reduce the non-modeled adjustment that was previously applied to the loss projections developed by our credit loss model.
The impact of these factors was partially offset by the impact of the following factor, which reduced our single-family benefit for loan losses recognized in the first quarter of 2021.2021:
•Provision from higher actual and projected interest rates. Although we continue to be in a historically low interest-rate environment, actual and projectedrates as mortgage interest rates roseincreased in the first quarter of 2021. As mortgage interest rates increase, we expect a decrease in future prepayments on single-family loans, including modified loans. Lower expected prepayments extend the expected lives of modified loans, which increases the expected impairment relating to term and interest-rate concessions provided on these loans resulting in a provision for loan losses.
The primary factors that impacted our single-family provision for loan losses in the first quarter of 2020 were:
•Expected loan losses as a result of the COVID-19 pandemic. Given the rapidly changing and deteriorating market conditions in the first quarter of 2020 as a result of the unprecedented COVID-19 pandemic, we believed our model used to estimate single-family credit losses as of March 31, 2020 did not capture the entirety of losses we expected to incur relating to COVID-19. As a result, management used its judgment to increase the loss projections developed by our credit loss model to reflect our expectations at that time relating to COVID-19’s impact. These judgments included adjusting our modeled results for (1) the expected impact of widespread forbearance programs, including the rate of borrower participation, and the volume and type of loan modifications as a result thereof, (2) the effect of TDR accounting relief from the CARES Act, and (3) lower expected prepayment volumes given the sharp rise in unemployment rates that were expected to stay elevated over the near term. In developing this model adjustment, management considered the credit risk profile of our single-family loan book of business at that time, as well as relevant historical credit loss experience during rare or stressful economic environments.
•A decrease in our expectations for home price growth. In the first quarter of 2020, we revised2022, the multifamily benefit for loan losses was a result of the reduction in our forecast to reflect near zero home price appreciation on a national basis for 2020loan loss reserves primarily due to COVID-19strong multifamily market disruptions. Lower home prices increase the likelihood that loans will default and increase the amount of credit loss on loans that do default, which impacts our estimate of losses and ultimately increases our loss reserves and provision for credit losses.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 90 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Allowance for Loan Losses |
•These factors were partially offset by lower actual and projected mortgage interest rates. As mortgage interest rates declined, we expected an increase in future prepayments on single-family loans, including modified loans. As noted above, we adjusted downward our modeled expectation of prepayment volumes due to the COVID-19 pandemic, which reduced this modeled benefit from interest rates.fundamentals.
The primary factors that impacted our multifamily benefit for loan losses in the first quarter of 2021 were:
•Benefit from actual and projected economic data. In the first quarter of 2021, property value forecasts increased due to continued demand for multifamily housing. In addition, improved job growth led to an increase in projected average property net operating income, which reduced the probability of loan default, resulting in a benefit for loan losses for the quarter.
•Benefit from changes in expected loan losses as a result of the COVID-19 pandemic. Similar to our single-family provision for loan losses described above, management continuescontinued to apply its judgment and supplementsupplemented model results as of March 31, 2021, due to continued uncertainty regarding the future impact of the pandemic, including the efficacy of the COVID-19 vaccines on new strains of the virus and its effect on the economy. Although uncertainty remains,remained, our expected loan losses as a result of the COVID-19 pandemic decreased in the first quarter of 2021 driven by positive economic growth and the passage of the American Rescue Plan, which provided additional economic stimulus. Based on these factors in the first quarter of 2021, management used its judgment to reduce the non-modeled adjustment that was previously applied to the loss projections developed by our credit loss model.
Our multifamily provision for loan losses in the first quarter 2020 was primarily driven by higher expected losses as a result of the economic dislocation caused by the COVID-19 pandemic. Consistent with the 2020 single-family provision for loan losses discussed above, we believed our model used to estimate multifamily loan losses as of March 31, 2020 did not capture the entirety of losses we expected to incur relating to COVID-19. As a result, management used its judgment to increase the loss projections developed by our credit loss model to reflect our expectations at that time relating to COVID-19’s impact. Accordingly, our multifamily provision for loan losses was primarily driven by higher expected unemployment rates, which we expected would increase the number of loans in forbearance and reduce property net operating income in the near term, thereby decreasing forecasted property values and increasing the probability of loan default. In developing these adjustments, management considered the credit risk profile of our multifamily loan book of business at that time, as well as relevant historical credit loss experience during rare or stressful economic environments. | | | | | | | | |
| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 87 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Investments in Securities |
5. Investments in Securities
Trading Securities
Trading securities are recorded at fair value with subsequent changes in fair value recorded asin “Fair value gains, (losses), net” in our condensed consolidated statements of operations and comprehensive income. The following table displays our investments in trading securities.
| | | | | | | | | | | | | | | | | | | | | As of |
| | As of | | March 31, 2022 | | December 31, 2021 |
| | March 31, 2021 | | December 31, 2020 | | | | |
| | (Dollars in millions) | | | (Dollars in millions) |
| Mortgage-related securities: | Mortgage-related securities: | | Mortgage-related securities: | |
| Fannie Mae | Fannie Mae | | $ | 1,985 | | | $ | 2,404 | | | Fannie Mae | | $ | 1,789 | | | $ | 1,576 | |
Other agency(1) | Other agency(1) | | 3,440 | | | 3,451 | | | Other agency(1) | | 2,710 | | | 2,893 | |
| Private-label and other mortgage securities | Private-label and other mortgage securities | | 157 | | | 158 | | | Private-label and other mortgage securities | | 127 | | | 137 | |
| Total mortgage-related securities (includes $741 million and $793 million, respectively, related to consolidated trusts) | | 5,582 | | | 6,013 | | | |
| Total mortgage-related securities (includes $499 million and $593 million, respectively, related to consolidated trusts) | | Total mortgage-related securities (includes $499 million and $593 million, respectively, related to consolidated trusts) | | 4,626 | | | 4,606 | |
| Non-mortgage-related securities: | Non-mortgage-related securities: | | Non-mortgage-related securities: | |
| U.S. Treasury securities | U.S. Treasury securities | | 105,601 | | | 130,456 | | | U.S. Treasury securities | | 79,987 | | | 83,581 | |
| Other securities | Other securities | | 73 | | | 73 | | | Other securities | | 16 | | | 19 | |
| Total non-mortgage-related securities | Total non-mortgage-related securities | | 105,674 | | | 130,529 | | | Total non-mortgage-related securities | | 80,003 | | | 83,600 | |
| Total trading securities | Total trading securities | | $ | 111,256 | | | $ | 136,542 | | | Total trading securities | | $ | 84,629 | | | $ | 88,206 | |
(1)Consists of Freddie Mac and Ginnie Mae mortgage-related securities.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 91 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Investments in Securities |
The following table displays information about our net trading gains (losses).
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | For the Three Months Ended March 31, |
| | |
| | | | | | | | | 2021 | | 2020 |
| | | | (Dollars in millions) |
| Net trading gains (losses) | | | | | | | | | $ | (758) | | | $ | 647 | |
| Net trading gains (losses) recognized in the period related to securities still held at period end | | | | | | | | | (759) | | | 591 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | For the Three Months Ended March 31, |
| | |
| | | | | | | | | 2022 | | 2021 |
| | | | | | | | | | | |
| | | | (Dollars in millions) |
| Net trading losses | | | | | | | | | $ | (1,770) | | | $ | (758) | |
| Net trading losses recognized in the period related to securities still held at period end | | | | | | | | | (1,714) | | | (759) | |
Available-for-Sale Securities
We record AFS securities at fair value with unrealized gains and losses, recorded net of tax, as a component of “Other comprehensive income (loss)”loss” and we recognize realized gains and losses from the sale of AFS securities in “Investment gains (losses), net” in our condensed consolidated statements of operations and comprehensive income. We define the amortized cost basis of our AFS securities as unpaid principal balance, net of unamortized premiums and discounts, and other cost basis adjustments. We record an allowance for credit losses for AFS securities that reflects the impairment for credit losses, which are limited to the amount that fair value is less than the amortized cost. Impairment due to non-credit losses are recorded as unrealized losses within other“Other comprehensive income.loss.”
| | | | | | | | |
| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 88 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Investments in Securities |
The following tables display the amortized cost, allowance for credit losses, gross unrealized gains and losses in accumulated other comprehensive income (loss) (“AOCI”), and fair value by major security type for AFS securities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of March 31, 2022 |
| | As of March 31, 2021 | | Total Amortized Cost(1) | | Allowance for Credit Losses(2) | | Gross Unrealized Gains in AOCI | | Gross Unrealized Losses in AOCI | | Total Fair Value(1) |
| | Total Amortized Cost(1) | | Allowance for Credit Losses | | | Gross Unrealized Gains in AOCI | | | Gross Unrealized Losses in AOCI | | Total Fair Value(1) | | | | | | | | | | |
| | (Dollars in millions) | | (Dollars in millions) |
| Fannie Mae | Fannie Mae | | $ | 988 | | | $ | 0 | | | $ | 59 | | | $ | (11) | | | $ | 1,036 | | Fannie Mae | | $ | 478 | | | $ | — | | | $ | 10 | | | $ | (12) | | | $ | 476 | |
Other agency(2) | | 32 | | | 0 | | | 2 | | | 0 | | | 34 | | |
Other agency(3) | | Other agency(3) | | 11 | | | — | | | 1 | | | — | | | 12 | |
| Alt-A and subprime private-label securities | Alt-A and subprime private-label securities | | 3 | | | 0 | | | 2 | | | 0 | | | 5 | | Alt-A and subprime private-label securities | | 3 | | | — | | | 2 | | | — | | | 5 | |
| | Mortgage revenue bonds | Mortgage revenue bonds | | 187 | | | (3) | | | 7 | | | 0 | | | 191 | | Mortgage revenue bonds | | 139 | | | — | | | 4 | | | (2) | | | 141 | |
| Other mortgage-related securities | Other mortgage-related securities | | 230 | | | 0 | | | 6 | | | 0 | | | 236 | | Other mortgage-related securities | | 171 | | | — | | | 1 | | | — | | | 172 | |
| Total | Total | | $ | 1,440 | | | $ | (3) | | | $ | 76 | | | $ | (11) | | | $ | 1,502 | | Total | | $ | 802 | | | $ | — | | | $ | 18 | | | $ | (14) | | | $ | 806 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2021 |
| | As of December 31, 2020 | | Total Amortized Cost(1) | | Allowance for Credit Losses(2) | | Gross Unrealized Gains in AOCI | | Gross Unrealized Losses in AOCI | | Total Fair Value(1) |
| | Total Amortized Cost(1) | | | Allowance for Credit Losses | | | Gross Unrealized Gains in AOCI | | Gross Unrealized Losses in AOCI | | Total Fair Value(1) | | | | | | | | | | |
| | (Dollars in millions) | | (Dollars in millions) |
| Fannie Mae | Fannie Mae | | $ | 1,094 | | | $ | 0 | | | $ | 86 | | | $ | (12) | | | $ | 1,168 | | Fannie Mae | | $ | 492 | | | $ | — | | | $ | 14 | | | $ | (11) | | | $ | 495 | |
Other agency(2) | | 59 | | | 0 | | | 6 | | | 0 | | | 65 | | |
Other agency(3) | | Other agency(3) | | 12 | | | — | | | — | | | — | | | 12 | |
| Alt-A and subprime private-label securities | Alt-A and subprime private-label securities | | 4 | | | 0 | | | 2 | | | 0 | | | 6 | | Alt-A and subprime private-label securities | | 3 | | | — | | | 2 | | | — | | | 5 | |
| Mortgage revenue bonds | Mortgage revenue bonds | | 211 | | | (3) | | | 8 | | | 0 | | | 216 | | Mortgage revenue bonds | | 142 | | | — | | | 5 | | | (3) | | | 144 | |
| Other mortgage-related securities | Other mortgage-related securities | | 238 | | | 0 | | | 4 | | | 0 | | | 242 | | Other mortgage-related securities | | 178 | | | — | | | 3 | | | — | | | 181 | |
| Total | Total | | $ | 1,606 | | | $ | (3) | | | $ | 106 | | | $ | (12) | | | $ | 1,697 | | Total | | $ | 827 | | | $ | — | | | $ | 24 | | | $ | (14) | | | $ | 837 | |
|
(1)We exclude from amortized cost and fair value accrued interest of $5 million and $6$2 million as of March 31, 20212022 and December 31, 2020, respectively,2021, which we record in “Other assets”“Accrued interest receivable, net” in our condensed consolidated balance sheets.
(2)Total allowance for credit losses is less than $0.5 million as of March 31, 2022 and December 31, 2021.
(3)Other agency securities consist of securities issued by Freddie Mac and Ginnie Mae.
Fannie Mae and Other Agency Securities
Our Fannie Mae and other agency AFS securities consist of securities issued by us, Freddie Mac, or Ginnie Mae. The principal and interest on these securities are guaranteed by the issuing agency. We believe that the guaranty provided by the issuing agency, the support provided to the agencies by the U.S. government, the importance of the agencies to the liquidity and stability in the secondary mortgage market, and the long history of zero credit losses on agency
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 92 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Investments in Securities |
mortgage-related securities are all indicators that there are currently no credit losses on these securities, even if the security is in an unrealized loss position. In addition, we generally hold these securities that are in an unrealized loss position to recovery. As a result, unless we intend to sell the security, we do not recognize an allowance for credit losses on agency mortgage-related securities.
Non-Agency Mortgage-Related Securities
As of March 31, 2021,2022, substantially all of our non-agency mortgage-related securities were in an unrealized gain position. As a result, we have not recognized an allowance for credit losses on these securities.
| | | | | | | | |
| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 89 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Investments in Securities |
The following tables displaytable displays additional information regarding gross unrealized losses and fair value by major security type for AFS securities in an unrealized loss position, excluding allowance for credit losses.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of |
| | As of | | March 31, 2022 | | December 31, 2021 |
| | March 31, 2021 | | December 31, 2020 | | Less Than 12 Consecutive Months | | 12 Consecutive Months or Longer | | Less Than 12 Consecutive Months | | 12 Consecutive Months or Longer |
| | Less Than 12 Consecutive Months | | 12 Consecutive Months or Longer | | Less Than 12 Consecutive Months | | 12 Consecutive Months or Longer | | Gross Unrealized Losses in AOCI | | Fair Value | | Gross Unrealized Losses in AOCI | | Fair Value | | Gross Unrealized Losses in AOCI | | Fair Value | | Gross Unrealized Losses in AOCI | | Fair Value |
| | Gross Unrealized Losses in AOCI | | Fair Value | | Gross Unrealized Losses in AOCI | | Fair Value | | Gross Unrealized Losses in AOCI | | Fair Value | | Gross Unrealized Losses in AOCI | | Fair Value | | | | | | | | | | | | | | | | |
| | (Dollars in millions) | | (Dollars in millions) |
| Fannie Mae | Fannie Mae | | $ | 0 | | | $ | 0 | | | $ | (11) | | | $ | 131 | | | | $ | (1) | | | $ | 40 | | | $ | (11) | | | $ | 94 | | Fannie Mae | | $ | (9) | | | $ | 214 | | | $ | (3) | | | $ | 97 | | | | $ | (5) | | | $ | 225 | | | $ | (6) | | | $ | 102 | |
| | Mortgage revenue bonds | | Mortgage revenue bonds | | (2) | | | 3 | | | — | | | — | | | (3) | | | 3 | | | — | | | — | |
| | Total | Total | | $ | 0 | | | $ | 0 | | | $ | (11) | | | $ | 131 | | | $ | (1) | | | $ | 40 | | | $ | (11) | | | $ | 94 | | Total | | $ | (11) | | | $ | 217 | | | $ | (3) | | | $ | 97 | | | $ | (8) | | | $ | 228 | | | $ | (6) | | | $ | 102 | |
| | | | | |
The following table displays the gross realized gains (losses) and proceeds on sales of AFS securities.
| | | | | | | | | | | | | | | | | | For the Three Months Ended March 31, |
| | | | For the Three Months Ended March 31, | | | For the Three Months Ended March 31, |
| | | | For the Three Months Ended March 31, | |
| | | | 2021 | | 2020 | | | | | |
| | | (Dollars in millions) | | | (Dollars in millions) |
| Gross realized gains | Gross realized gains | | | $ | 13 | | | $ | 21 | | Gross realized gains | | $ | — | | | $ | 13 | |
| | Total proceeds (excludes initial sale of securities from new portfolio securitizations) | Total proceeds (excludes initial sale of securities from new portfolio securitizations) | | | 115 | | | 50 | | Total proceeds (excludes initial sale of securities from new portfolio securitizations) | | — | | | 115 | |
The following tables displaytable displays net unrealized gains and losses on AFS securities and other amounts accumulatedrecorded within our accumulated other comprehensive income, net of tax.
| | | | | | | | | | | | | | | As of |
| | As of | | March 31, 2022 | | December 31, 2021 |
| | March 31, 2021 | | December 31, 2020 | | | | |
| | (Dollars in millions) | | (Dollars in millions) |
| Net unrealized gains on AFS securities for which we have not recorded an allowance for credit losses | Net unrealized gains on AFS securities for which we have not recorded an allowance for credit losses | | $ | 51 | | | $ | 74 | | Net unrealized gains on AFS securities for which we have not recorded an allowance for credit losses | | $ | 4 | | | $ | 9 | |
| | Net unrealized gains (losses) on AFS securities for which we have recorded an allowance for credit losses | | Net unrealized gains (losses) on AFS securities for which we have recorded an allowance for credit losses | | (2) | | | (2) | |
| Other | Other | | 38 | | | 42 | | Other | | 29 | | | 31 | |
| Accumulated other comprehensive income | Accumulated other comprehensive income | | $ | 89 | | | $ | 116 | | Accumulated other comprehensive income | | $ | 31 | | | $ | 38 | |
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 9390 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Investments in Securities |
Maturity Information
The following table displays the amortized cost and fair value of our AFS securities by major security type and remaining contractual maturity, assuming no principal prepayments. The contractual maturity of mortgage-backed securities is not a reliable indicator of their expected life because borrowers generally have the right to prepay their obligations at any time.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of March 31, 2022 |
| | | As of March 31, 2021 | | Total Carrying Amount(1) | | Total
Fair
Value | | One Year or Less | | After One Year Through Five Years | | After Five Years Through Ten Years | | After Ten Years |
| | Total Carrying Amount(1) | | Total
Fair
Value | | One Year or Less | | After One Year Through Five Years | | After Five Years Through Ten Years | | After Ten Years | | Net Carrying Amount(1) | | Fair Value | | Net Carrying Amount(1) | | Fair Value | | Net Carrying Amount(1) | | Fair Value | | Net Carrying Amount(1) | | Fair Value |
| | Net Carrying Amount(1) | | Fair Value | | Net Carrying Amount(1) | | Fair Value | | Net Carrying Amount(1) | | Fair Value | | Net Carrying Amount(1) | | Fair Value | | | | | | | | | | | | | | | | | | | | |
| | | (Dollars in millions) | | (Dollars in millions) |
| Fannie Mae | Fannie Mae | | $ | 988 | | | $ | 1,036 | | | $ | 0 | | | $ | 0 | | | $ | 4 | | | $ | 4 | | | $ | 98 | | | $ | 109 | | | $ | 886 | | | $ | 923 | | Fannie Mae | | $ | 478 | | | $ | 476 | | | $ | — | | | $ | — | | | $ | 3 | | | $ | 3 | | | $ | 15 | | | $ | 16 | | | $ | 460 | | | $ | 457 | |
| Other agency | Other agency | | 32 | | | 34 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 1 | | | 31 | | | 33 | | Other agency | | 11 | | | 12 | | | — | | | — | | | — | | | — | | | 1 | | | 1 | | | 10 | | | 11 | |
| Alt-A and subprime private-label securities | Alt-A and subprime private-label securities | | 3 | | | 5 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | | | 2 | | | 1 | | | 3 | | Alt-A and subprime private-label securities | | 3 | | | 5 | | | — | | | — | | | — | | | — | | | 2 | | | 2 | | | 1 | | | 3 | |
| | Mortgage revenue bonds | Mortgage revenue bonds | | 184 | | | 191 | | | 1 | | | 1 | | | 26 | | | 27 | | | 18 | | | 19 | | | 139 | | | 144 | | Mortgage revenue bonds | | 139 | | | 141 | | | 4 | | | 4 | | | 20 | | | 21 | | | 10 | | | 10 | | | 105 | | | 106 | |
| Other mortgage-related securities | Other mortgage-related securities | | 230 | | | 236 | | | 0 | | | 0 | | | 0 | | | 0 | | | 18 | | | 20 | | | 212 | | | 216 | | Other mortgage-related securities | | 171 | | | 172 | | | — | | | — | | | — | | | — | | | 3 | | | 3 | | | 168 | | | 169 | |
| Total | Total | | $ | 1,437 | | | $ | 1,502 | | | $ | 1 | | | $ | 1 | | | $ | 30 | | | $ | 31 | | | $ | 137 | | | $ | 151 | | | $ | 1,269 | | | $ | 1,319 | | Total | | $ | 802 | | | $ | 806 | | | $ | 4 | | | $ | 4 | | | $ | 23 | | | $ | 24 | | | $ | 31 | | | $ | 32 | | | $ | 744 | | | $ | 746 | |
(1)Net carrying amount consists of book value,amortized cost, net of allowance for credit losses on AFS debt securities.securities but does not include any unrealized fair value gains or losses.
6. Financial Guarantees
We recognize a guaranty obligation for our obligation to stand ready to perform on our guarantees to unconsolidated trusts and other guaranty arrangements. These off-balance sheet guarantees expose us to credit losses primarily relating to the unpaid principal balance of our unconsolidated Fannie Mae MBS and other financial guarantees. The maximum remaining contractual term of our guarantees is 3231 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. We measure our guaranty reserve for estimated credit losses for off-balance sheet exposures over the contractual period for which they are exposed to the credit risk, unless that obligation is unconditionally cancellable by the issuer.
As the guarantor of structured securities backed in whole or in part by Freddie Mac-issued securities, we extend our guaranty to the underlying Freddie Mac securities in our resecuritization trusts. However, Freddie Mac continues to guarantee the payment of principal and interest on the underlying Freddie Mac securities that we have resecuritized. We do not charge an incremental guaranty fee to include Freddie Mac securities in the structured securities that we issue. When we began issuing UMBS, in June 2019, we entered into an indemnification agreement under which Freddie Mac agreed to indemnify us for losses caused by its failure to meet its payment or other specified obligations under the trust agreements pursuant to which the underlying resecuritized securities were issued. As a result, and due to the funding commitment available to Freddie Mac through its senior preferred stock purchase agreement with Treasury, we have concluded that the associated credit risk is negligible. Accordingly, we exclude from the following table Freddie Mac securities backing unconsolidated Fannie Mae-issued structured securities of approximately $154.6$236.1 billion and $137.3$212.3 billion as of March 31, 20212022 and December 31, 2020,2021, respectively.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 9491 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Financial Guarantees |
The following table displays our off-balance sheet maximum exposure, guaranty obligation recognized in our condensed consolidated balance sheets and the potential maximum recovery from third parties through available credit enhancements and recourse related to our financial guarantees.
| | | As of | | As of |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | Maximum Exposure | | Guaranty Obligation | | Maximum Recovery(1) | | Maximum Exposure | | Guaranty Obligation | | Maximum Recovery(1) | | Maximum Exposure | | Guaranty Obligation | | Maximum Recovery(1) | | Maximum Exposure | | Guaranty Obligation | | Maximum Recovery(1) |
| | (Dollars in millions) | | (Dollars in millions) |
| Unconsolidated Fannie Mae MBS | Unconsolidated Fannie Mae MBS | | $ | 4,232 | | | $ | 17 | | | $ | 4,047 | | | $ | 4,424 | | | $ | 18 | | | $ | 4,226 | | Unconsolidated Fannie Mae MBS | | $ | 3,570 | | | $ | 15 | | | $ | 3,470 | | | $ | 3,733 | | | $ | 16 | | | $ | 3,626 | |
Other guaranty arrangements(2) | Other guaranty arrangements(2) | | 11,392 | | | 103 | | | 2,295 | | | 11,828 | | | 109 | | | 2,438 | | Other guaranty arrangements(2) | | 10,328 | | | 84 | | | 2,105 | | | 10,423 | | | 85 | | | 2,117 | |
| Total | Total | | $ | 15,624 | | | $ | 120 | | | $ | 6,342 | | | $ | 16,252 | | | $ | 127 | | | $ | 6,664 | | Total | | $ | 13,898 | | | $ | 99 | | | $ | 5,575 | | | $ | 14,156 | | | $ | 101 | | | $ | 5,743 | |
(1)Recoverability of such credit enhancements and recourse is subject to, among other factors, the ability of our mortgage insurers and the U.S. government, as a financial guarantor, to meet their obligations to us. For information on our mortgage insurers, “Note 10, Concentrations of Credit Risk.”
(2)Primarily consists of credit enhancements and long-term standby commitments.
7. Short-Term and Long-Term Debt
In January 2021, we began applying fair value hedge accounting to certain debt issuances. The objective of our fair value hedges is to reduce GAAP earnings volatility related to changes in benchmark interest rates. See “Note 1, Summary of Significant Accounting Policies” and “Note 8, Derivative Instruments” for additional information on our fair value hedge accounting policy and related disclosures.
Short-Term Debt
The following table displays our outstanding short-term debt (debt with an original contractual maturity of one year or less) and weighted-average interest rates of this debt.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of |
| | | March 31, 2021 | | December 31, 2020 |
| | Outstanding | | Weighted- Average Interest Rate(1) | | Outstanding | | Weighted- Average Interest Rate(1) |
| | (Dollars in millions) |
| | | | | | | | |
| Short-term debt of Fannie Mae | | $ | 2,857 | | | 0.06 | % | | $ | 12,173 | | | 0.18 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of |
| | | March 31, 2022 | | December 31, 2021 |
| | Outstanding | | Weighted- Average Interest Rate(1) | | Outstanding | | Weighted- Average Interest Rate(1) |
| | (Dollars in millions) |
| | | | | | | | |
| Short-term debt of Fannie Mae | | $ | 4,045 | | | 0.15 | % | | $ | 2,795 | | | 0.03 | % |
(1)Includes the effects of discounts, premiums and other cost basis adjustments.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 9592 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Short-Term and Long-Term Debt |
Long-Term Debt
Long-term debt represents debt with an original contractual maturity of greater than one year. The following table displays our outstanding long-term debt.
| | | As of | | As of |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | Maturities | | Outstanding(1) | | Weighted- Average Interest Rate(2) | | Maturities | | Outstanding | | Weighted- Average Interest Rate(2) | | Maturities | | Outstanding(1) | | Weighted- Average Interest Rate(2) | | Maturities | | Outstanding(1) | | Weighted- Average Interest Rate(2) |
| | (Dollars in millions) | | (Dollars in millions) |
| Senior fixed: | Senior fixed: | | Senior fixed: | |
| Benchmark notes and bonds | Benchmark notes and bonds | 2021 - 2030 | | $ | 102,683 | | | 2.09 | % | | 2021 - 2030 | | $ | 106,691 | | | 2.03 | % | Benchmark notes and bonds | 2022 - 2030 | | $ | 82,954 | | | 2.18 | % | | 2022 - 2030 | | $ | 89,618 | | | 2.13 | % |
Medium-term notes(3) | Medium-term notes(3) | 2021 - 2031 | | 47,693 | | | 0.61 | | | 2021 - 2030 | | 48,524 | | | 0.63 | | Medium-term notes(3) | 2022 - 2031 | | 38,114 | | | 0.60 | | | 2022 - 2031 | | 38,312 | | | 0.60 | |
Other(4) | Other(4) | 2021 - 2038 | | 7,195 | | | 3.77 | | | 2021 - 2038 | | 6,701 | | | 3.90 | | Other(4) | 2023 - 2038 | | 6,933 | | | 3.79 | | | 2023 - 2038 | | 7,045 | | | 3.73 | |
| Total senior fixed | Total senior fixed | | 157,571 | | | 1.72 | | | 161,916 | | | 1.69 | | Total senior fixed | | 128,001 | | | 1.81 | | | 134,975 | | | 1.78 | |
| Senior floating: | Senior floating: | | Senior floating: | |
Medium-term notes(3) | Medium-term notes(3) | 2021 - 2022 | | 98,095 | | | 0.28 | | | 2021 - 2022 | | 100,089 | | | 0.35 | | Medium-term notes(3) | 2022 | | 37,410 | | | 0.42 | | | 2022 | | 51,583 | | | 0.32 | |
Connecticut Avenue Securities(5) | Connecticut Avenue Securities(5) | 2023 - 2031 | | 14,537 | | | 4.13 | | | 2023 - 2031 | | 14,978 | | | 4.16 | | Connecticut Avenue Securities(5) | 2023 - 2031 | | 10,406 | | | 4.51 | | | 2023 - 2031 | | 11,166 | | | 4.30 | |
Other(6) | Other(6) | 2037 | | 382 | | | 7.69 | | | 2037 | | 416 | | | 7.75 | | Other(6) | 2037 | | 307 | | | 7.77 | | | 2037 | | 373 | | | 7.17 | |
| Total senior floating | Total senior floating | | 113,014 | | | 0.79 | | | 115,483 | | | 0.86 | | Total senior floating | | 48,123 | | | 1.34 | | | 63,122 | | | 1.05 | |
| Total long-term debt of Fannie Mae(7) | Total long-term debt of Fannie Mae(7) | | 270,585 | | | 1.34 | | | 277,399 | | | 1.34 | | Total long-term debt of Fannie Mae(7) | | 176,124 | | | 1.68 | | | 198,097 | | | 1.55 | |
| Debt of consolidated trusts | Debt of consolidated trusts | 2021 - 2060 | | 3,740,538 | | | 1.72 | | | 2021 - 2060 | | 3,646,164 | | | 1.88 | | Debt of consolidated trusts | 2022 - 2061 | | 4,028,628 | | | 2.03 | | | 2022 - 2061 | | 3,957,299 | | | 1.89 | |
| Total long-term debt | Total long-term debt | | $ | 4,011,123 | | | 1.70 | % | | $ | 3,923,563 | | | 1.85 | % | Total long-term debt | | $ | 4,204,752 | | | 2.02 | % | | $ | 4,155,396 | | | 1.88 | % |
(1)Outstanding debt balance consists of the unpaid principal balance, premiums and discounts, fair value adjustments, hedge-related basis adjustments, and other cost basis adjustments.
(2)Excludes the effects of fair value adjustments and hedge-related basis adjustments.
(3)Includes long-term debt with an original contractual maturity of greater than 1 year and up to 10 years, excluding zero-coupon debt.
(4)Includes other long-term debt with an original contractual maturity of greater than 10 years and foreign exchange bonds.
(5)Credit risk-sharing securities that transfer a portionConsists of the credit risk on specified pools of single-family mortgage loansCAS debt issued prior to the investors in these securities,November 2018, a portion of which is reported at fair value. Represents CAS issued prior to November 2018. See “Note 2, Consolidations and Transfers of Financial Assets” in our 20202021 Form 10-K for more information about our CAS structures issued beginning November 2018.
(6)Consists of structured debt instruments that are reported at fair value.
(7)Includes unamortized discounts and premiums, fair value adjustments, hedge-related cost basis adjustments, and other cost basis adjustments in a net discount position of $1.6$3.2 billion and $392 million$1.6 billion as of March 31, 20212022 and December 31, 2020,2021, respectively.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 96 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Derivative Instruments |
8. Derivative Instruments
Derivative instruments are an integral part of our strategy in managing interest-rate risk. Derivative instruments may be privately-negotiated, bilateral contracts, or they may be listed and traded on an exchange. We refer to our derivative transactions made pursuant to bilateral contracts as our over-the-counter (“OTC”) derivative transactions and our derivative transactions accepted for clearing by a derivatives clearing organization as our cleared derivative transactions. We typically do not settle the notional amount of our risk management derivatives; rather, notional amounts provide the basis for calculating actual payments or settlement amounts. The derivative contracts we use for interest-rate risk management purposes consist primarily of interest-rate swaps and interest-rate options. See “Note 8, Derivative Instruments” in our 20202021 Form 10-K for additional information on interest-rate risk management.
We account for certain forms of credit risk transfer transactions as derivatives. In our credit risk transfer transactions, a portion of the credit risk associated with losses on a reference pool of mortgage loans is transferred to a third party. We enter into derivative transactions that are associated with some of our credit risk transfer transactions, whereby we manage investment risk to guarantee that certain unconsolidated VIEs have sufficient cash flows to pay their contractual obligations.
We enter into forward purchase and sale commitments that lock in the future delivery of mortgage loans and mortgage-related securities at a fixed price or yield. Certain commitments to purchase mortgage loans and purchase or sell mortgage-related securities meet the criteria of a derivative. We typically settle the notional amount of our mortgage commitments that are accounted for as derivatives.
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| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 93 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Derivative Instruments |
We recognize all derivatives as either assets or liabilities in our condensed consolidated balance sheets at their fair value on a trade date basis. Fair value amounts, which are (1) netted to the extent a legal right of offset exists and is enforceable by law at the counterparty level and (2) inclusive of the right or obligation associated with the cash collateral posted or received, are recorded in “Other assets” or “Other liabilities” in our condensed consolidated balance sheets. See “Note 12, Fair Value” for additional information on derivatives recorded at fair value. We present cash flows from derivatives as operating activities in our condensed consolidated statements of cash flows.
Fair Value Hedge Accounting
As discussed in “Note 1, Summary of Significant Accounting Policies,”Policies” in our 2021 Form 10-K, we implemented a fair value hedge accounting program in January 2021. Pursuant to this program, we may designate certain interest-rate swaps as hedging instruments in hedges of the change in fair value attributable to the designated benchmark interest rate for certain closed pools of fixed-rate, single-family mortgage loans or our funding debt. For hedged items in qualifying fair value hedging relationships, changes in fair value attributable to the designated risk are recognized as a basis adjustment to the hedged item. We also report changes in the fair value of the derivative hedging instrument in the same condensed consolidated statements of operations and comprehensive income line item used to recognize the earnings effect of the hedged item’s basis adjustment. The objective of our fair value hedges is to reduce GAAP earnings volatility related to changes in benchmark interest rates.
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Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 9794 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Derivative Instruments |
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, including derivative instruments designated as hedges.
| | | As of March 31, 2021 | | As of December 31, 2020 | | | As of March 31, 2022 | | As of December 31, 2021 | |
| | 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 | | Notional Amount | | Estimated Fair Value | | Notional Amount | | Estimated Fair Value | | | Asset Derivatives | | | | Liability Derivatives | | Asset Derivatives | | | Liability Derivatives | |
| | (Dollars in millions) | | | (Dollars in millions) | |
| Risk management derivatives designated as fair value hedges: | | | |
| Swaps: | | | |
| Risk management derivatives designated as hedging instruments: | | Risk management derivatives designated as hedging instruments: | | | | | | |
Swaps:(1) | | Swaps:(1) | | | | | | |
| Pay-fixed | Pay-fixed | | $ | 2,804 | | | $ | 0 | | | $ | 75 | | | $ | (7) | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | Pay-fixed | | $ | 5,527 | | | $ | — | | | | | $ | — | | | $ | 4,347 | | | $ | — | | | | $ | — | | |
| Receive-fixed | Receive-fixed | | 39,754 | | | 2 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | Receive-fixed | | 44,264 | | | — | | | | | (8) | | | 40,686 | | | — | | | | — | | |
| Accrued interest receivable | | — | | | 1 | | | — | | | 0 | | | — | | | 0 | | | — | | | 0 | | | |
| Total risk management derivatives designated as hedges | | 42,558 | | | 3 | | | 75 | | | (7) | | | 0 | | | 0 | | | 0 | | | 0 | | | |
| Risk management derivatives not designated as fair value hedges: | | | | | | | | | | | | | | | | | | |
| Swaps: | | | |
| | Total risk management derivatives designated as hedging instruments | | Total risk management derivatives designated as hedging instruments | | 49,791 | | | — | | | | | (8) | | | 45,033 | | | — | | | | — | | |
| Risk management derivatives not designated as hedging instruments: | | Risk management derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | |
Swaps:(1) | | Swaps:(1) | | | | | | |
| Pay-fixed | Pay-fixed | | 68,674 | | | 0 | | | 9,636 | | | (482) | | | 88,361 | | | 0 | | | 11,461 | | | (595) | | | Pay-fixed | | 67,940 | | | — | | | | | — | | | 56,817 | | | — | | | | — | | |
| Receive-fixed | Receive-fixed | | 45,635 | | | 167 | | | 46,039 | | | (1,035) | | | 92,315 | | | 233 | | | 33,919 | | | (123) | | | Receive-fixed | | 63,074 | | | — | | | | | (2,850) | | | 56,874 | | | — | | | | (1,131) | | |
| Basis | Basis | | 250 | | | 146 | | | 0 | | | 0 | | | 250 | | | 192 | | | 0 | | | 0 | | | Basis | | 24,750 | | | 82 | | | | | — | | | 250 | | | 152 | | | | — | | |
| Foreign currency | Foreign currency | | 238 | | | 43 | | | 241 | | | (52) | | | 237 | | | 57 | | | 239 | | | (58) | | | Foreign currency | | 326 | | | 7 | | | | | (37) | | | 336 | | | 25 | | | | (34) | | |
Swaptions: | Swaptions: | | | Swaptions: | | | | | | |
| Pay-fixed | Pay-fixed | | 5,690 | | | 124 | | | 375 | | | (16) | | | 5,530 | | | 37 | | | 2,025 | | | (118) | | | Pay-fixed | | 4,241 | | | 94 | | | | | — | | | 4,341 | | | 52 | | | | (2) | | |
| Receive-fixed | Receive-fixed | | 1,455 | | | 96 | | | 1,110 | | | (42) | | | 3,355 | | | 346 | | | 700 | | | (16) | | | Receive-fixed | | 1,091 | | | 8 | | | | | (21) | | | 1,091 | | | 10 | | | | (21) | | |
Futures(1) | | 1,602 | | | 0 | | | 0 | | | 0 | | | 64,398 | | | 0 | | | 0 | | | 0 | | | |
| Total gross risk management derivatives | | 123,544 | | | 576 | | | 57,401 | | | (1,627) | | | 254,446 | | | 865 | | | 48,344 | | | (910) | | | |
| Accrued interest receivable (payable) | | — | | | 91 | | | — | | | (86) | | | — | | | 97 | | | — | | | (105) | | | |
| Total risk management derivatives not designated as hedges | | 123,544 | | | 667 | | | 57,401 | | | (1,713) | | | 254,446 | | | 962 | | | 48,344 | | | (1,015) | | | |
| | Total risk management derivatives not designated as hedging instruments | | Total risk management derivatives not designated as hedging instruments | | 161,422 | | | 191 | | | | | (2,908) | | | 119,709 | | | 239 | | | | (1,188) | | |
| Netting adjustment(2) | Netting adjustment(2) | | — | | | (655) | | | — | | | 1,632 | | | — | | | (905) | | | — | | | 995 | | | Netting adjustment(2) | | — | | | (109) | | | | | 2,881 | | | — | | | (237) | | | | 1,173 | | |
| Total risk management derivatives portfolio | Total risk management derivatives portfolio | | 166,102 | | | 15 | | | 57,476 | | | (88) | | | 254,446 | | | 57 | | | 48,344 | | | (20) | | | Total risk management derivatives portfolio | | 211,213 | | | 82 | | | | | (35) | | | 164,742 | | | 2 | | | | (15) | | |
| Mortgage commitment derivatives: | Mortgage commitment derivatives: | | | | | | | | | | | | | | | | | | Mortgage commitment derivatives: | | | | | | | | | | | | | | | | |
| Mortgage commitments to purchase whole loans | Mortgage commitments to purchase whole loans | | 9,456 | | | 5 | | | 22,709 | | | (237) | | | 35,292 | | | 145 | | | 51 | | | 0 | | | Mortgage commitments to purchase whole loans | | 12,107 | | | 23 | | | | | (96) | | | 13,192 | | | 17 | | | | (5) | | |
| Forward contracts to purchase mortgage-related securities | Forward contracts to purchase mortgage-related securities | | 26,155 | | | 57 | | | 145,335 | | | (1,689) | | | 144,215 | | | 844 | | | 607 | | | 0 | | | Forward contracts to purchase mortgage-related securities | | 70,751 | | | 64 | | | | | (958) | | | 58,021 | | | 83 | | | | (34) | | |
| Forward contracts to sell mortgage-related securities | Forward contracts to sell mortgage-related securities | | 220,063 | | | 2,534 | | | 31,765 | | | (46) | | | 199 | | | 0 | | | 227,828 | | | (1,426) | | | Forward contracts to sell mortgage-related securities | | 107,452 | | | 1,652 | | | | | (87) | | | 111,173 | | | 69 | | | | (158) | | |
| Total mortgage commitment derivatives | Total mortgage commitment derivatives | | 255,674 | | | 2,596 | | | 199,809 | | | (1,972) | | | 179,706 | | | 989 | | | 228,486 | | | (1,426) | | | Total mortgage commitment derivatives | | 190,310 | | | 1,739 | | | | | (1,141) | | | 182,386 | | | 169 | | | | (197) | | |
| Credit enhancement derivatives | Credit enhancement derivatives | | 14,079 | | | 61 | | | 10,410 | | | (46) | | | 16,829 | | | 179 | | | 11,368 | | | (49) | | | Credit enhancement derivatives | | 21,620 | | | 3 | | | | | (28) | | | 19,256 | | | — | | | | (21) | | |
| Derivatives at fair value | Derivatives at fair value | | $ | 435,855 | | | $ | 2,672 | | | $ | 267,695 | | | $ | (2,106) | | | $ | 450,981 | | | $ | 1,225 | | | $ | 288,198 | | | $ | (1,495) | | | Derivatives at fair value | | $ | 423,143 | | | $ | 1,824 | | | | | $ | (1,204) | | | $ | 366,384 | | | $ | 171 | | | | $ | (233) | | |
(1)FuturesCentrally cleared derivatives have no ascribable fair value because the positions are settled daily.
(2)The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting arrangements to settle with the same counterparty on a net basis, including cash collateral posted and received. Cash collateral posted was $1.0$2.8 billion and $658$966 million as of March 31, 20212022 and December 31, 2020,2021, respectively. Cash collateral received was $35$45 million and $568$30 million as of March 31, 20212022 and December 31, 2020,2021, respectively.
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Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 9895 |
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| Notes to Condensed Consolidated Financial Statements | Derivative Instruments |
We record all gains and losses, including accrued interest, on derivatives while they are not in a qualifying designated hedging relationship in “Fair value gains, (losses), net” in our condensed consolidated statements of operations and comprehensive income. The following table displays, by type of derivative instrument, the fair value gains and losses, net on our derivatives.
| | | | | For the Three Months Ended March 31, | |
| | For the Three Months Ended March 31, | | For the Three Months Ended March 31, |
| | | | 2021 | | 2020 | | 2022 | | | | 2021 |
| | | (Dollars in millions) | | (Dollars in millions) |
| Risk management derivatives: | Risk management derivatives: | | | | Risk management derivatives: | | | | | |
| Swaps: | Swaps: | | | | Swaps: | | | | | |
| Pay-fixed | Pay-fixed | | | | $ | 2,207 | | | $ | (4,029) | | Pay-fixed | | $ | 2,125 | | | | | $ | 2,207 | |
| Receive-fixed | Receive-fixed | | | | (1,855) | | | 3,343 | | Receive-fixed | | (2,260) | | | | | (1,855) | |
| Basis | Basis | | | | (46) | | | 56 | | Basis | | (68) | | | | | (46) | |
| Foreign currency | Foreign currency | | | | (8) | | | (38) | | Foreign currency | | (24) | | | | | (8) | |
| Swaptions: | Swaptions: | | | | Swaptions: | | | | | |
| Pay-fixed | Pay-fixed | | | | 107 | | | (148) | | Pay-fixed | | 44 | | | | | 107 | |
| Receive-fixed | Receive-fixed | | | | (239) | | | 632 | | Receive-fixed | | (3) | | | | | (239) | |
| Futures | Futures | | | | 1 | | | (71) | | Futures | | — | | | | | 1 | |
| Net contractual interest expense on interest-rate swaps | Net contractual interest expense on interest-rate swaps | | | | (11) | | | (106) | | Net contractual interest expense on interest-rate swaps | | (11) | | | | | (11) | |
| Total risk management derivatives fair value gains (losses), net | Total risk management derivatives fair value gains (losses), net | | | | 156 | | | (361) | | Total risk management derivatives fair value gains (losses), net | | (197) | | | | | 156 | |
| Mortgage commitment derivatives fair value gains (losses), net | | | | 1,082 | | | (993) | | |
| Mortgage commitment derivatives fair value gains, net | | Mortgage commitment derivatives fair value gains, net | | 1,572 | | | | | 1,082 | |
| Credit enhancement derivatives fair value losses, net | Credit enhancement derivatives fair value losses, net | | | | (90) | | | (11) | | Credit enhancement derivatives fair value losses, net | | (22) | | | | | (90) | |
| Total derivatives fair value gains (losses), net | | | | $ | 1,148 | | | $ | (1,365) | | |
| Total derivatives fair value gains, net | | Total derivatives fair value gains, net | | $ | 1,353 | | | | | $ | 1,148 | |
Effect of Fair Value Hedge Accounting
The following table displays the effect of fair value hedge accounting on our condensed consolidated statements of operations and comprehensive income, including gains and losses recognized on fair value hedging relationships.
| | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, 2021 | | |
| | Interest Income: Mortgage Loans | | | | Interest Expense: Long-Term Debt | | |
| | (Dollars in millions) | | |
| Total amounts presented in our condensed consolidated statements of operations and comprehensive income | | $ | 23,353 | | | | | $ | (16,817) | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Gains (losses) from fair value hedging relationships: | | | | | | | | |
| Mortgage loans HFI and related interest-rate contracts: | | | | | | | | |
| Hedged items | | (36) | | | | | — | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Derivatives designated as hedging instruments | | 36 | | | | | — | | | |
| | | | | | | | |
| Debt of Fannie Mae and related interest-rate contracts: | | | | | | | | |
| Hedged items | | — | | | | | 1,195 | | | |
| Discontinued hedge-related basis adjustment amortization | | — | | | | | (13) | | | |
| Derivatives designated as hedging instruments | | — | | | | | (1,214) | | | |
| Interest accruals on derivative hedging instruments | | — | | | | | 54 | | | |
| Total effect of fair value hedges | | $ | 0 | | | | | $ | 22 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2022 | | | | 2021 | | |
| | Interest Income: Mortgage Loans | | Interest Expense: Long-Term Debt | | | | | Interest Income: Mortgage Loans | | Interest Expense: Long-Term Debt | | | |
| | (Dollars in millions) |
| Total amounts presented in our condensed consolidated statements of operations and comprehensive income | | $ | 27,142 | | | $ | (19,940) | | | | | | $ | 23,353 | | | $ | (16,817) | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Gains (losses) from fair value hedging relationships: | | | | | | | | | | | | | | |
| Mortgage loans HFI and related interest-rate contracts: | | | | | | | | | | | | | | |
| Hedged items | | $ | (238) | | | $ | — | | | | | | $ | (36) | | | $ | — | | | | |
| Discontinued hedge related basis adjustment amortization | | — | | | — | | | | | | — | | | — | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Derivatives designated as hedging instruments | | 227 | | | — | | | | | | 36 | | | — | | | | |
| Interest accruals on hedging instruments | | (8) | | | — | | | | | | — | | | — | | | | |
| Debt of Fannie Mae and related interest-rate contracts: | | | | | | | | | | | | | | |
| Hedged items | | — | | | 1,623 | | | | | | — | | | 1,195 | | | | |
| Discontinued hedge-related basis adjustment amortization | | — | | | (65) | | | | | | — | | | (13) | | | | |
| Derivatives designated as hedging instruments | | — | | | (1,524) | | | | | | — | | | (1,214) | | | | |
| Interest accruals on derivative hedging instruments | | — | | | 47 | | | | | | — | | | 54 | | | | |
| Total effect of fair value hedges | | $ | (19) | | | $ | 81 | | | | | | $ | — | | | $ | 22 | | | | |
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 9996 |
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| Notes to Condensed Consolidated Financial Statements | Derivative Instruments |
Hedged Items in Fair Value Hedging Relationships
The following table displays the carrying amounts of the hedged items that have been in qualifying fair value hedges recorded in our condensed consolidated balance sheets, including the hedged item's cumulative basis adjustments and the closed portfolio balances under the last-of-layer method. The hedged item carrying amounts and total basis adjustments include both open and discontinued hedges. The amortized cost and designated UPB consists only of open hedges only.as of March 31, 2022 and December 31, 2021.
| | | As of March 31, 2021 | | As of March 31, 2022 |
| | Carrying Amount Assets (Liabilities) | | Cumulative Amount of Fair Value Hedging Basis Adjustments Included in the Carrying Amount | | Closed Portfolio of Mortgage Loans Under Last-of-Layer Method | | Carrying Amount Assets (Liabilities) | | Cumulative Amount of Fair Value Hedging Basis Adjustments Included in the Carrying Amount | | Closed Portfolio of Mortgage Loans Under Last-of-Layer Method |
| | Total Basis Adjustments(1) | | Remaining Adjustments - Discontinued Hedge | | Total Amortized Cost | | Designated UPB | | Total Basis Adjustments(1)(2) | | Remaining Adjustments - Discontinued Hedge | | Total Amortized Cost | | Designated UPB |
| | (Dollars in millions) | | (Dollars in millions) |
| Mortgage loans HFI | Mortgage loans HFI | | $ | 83,521 | | | $ | (36) | | | $ | (36) | | | $ | 55,819 | | | $ | 2,879 | | Mortgage loans HFI | | $ | 208,820 | | | $ | (104) | | | $ | (104) | | | $ | 62,004 | | | $ | 5,379 | |
| | Debt of Fannie Mae | Debt of Fannie Mae | | (55,345) | | | 1,182 | | | 1,182 | | | — | | | — | | Debt of Fannie Mae | | (76,619) | | | 2,838 | | | 2,838 | | | N/A | | N/A |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2021 |
| | Carrying Amount Assets (Liabilities) | | Cumulative Amount of Fair Value Hedging Basis Adjustments Included in the Carrying Amount | | Closed Portfolio of Mortgage Loans Under Last-of-Layer Method |
| | | Total Basis Adjustments(1)(2) | | Remaining Adjustments - Discontinued Hedge | | Total Amortized Cost | | Designated UPB |
| | (Dollars in millions) |
| Mortgage loans HFI | | $ | 174,080 | | | $ | 134 | | | $ | 134 | | | $ | 56,786 | | | $ | 4,389 | |
| | | | | | | | | | |
| Debt of Fannie Mae | | (72,174) | | | 1,281 | | | 1,281 | | | N/A | | N/A |
(1)No basis adjustment associated with open hedges, as all hedges are designated at the close of business, with a one-day term.
(2) Based on the unamortized balance of the hedge-related cost basis.
Derivative Counterparty Credit Exposure
Our derivative counterparty credit exposure relates principally to interest-rate derivative contracts. We are exposed to the risk that a counterparty in a derivative transaction will default on payments due to us, which may require us to seek a replacement derivative from a different counterparty. This replacement may be at a higher cost, or we may be unable to find a suitable replacement. We manage our derivative counterparty credit exposure relating to our risk management derivative transactions mainly through enforceable master netting arrangements, which allow us to net derivative assets and liabilities with the same counterparty or clearing organization and clearing member. For our OTC derivative transactions, we require counterparties to post collateral, which may include cash, U.S. Treasury securities, agency debt and agency mortgage-related securities.
See “Note 11, Netting Arrangements” for information on our rights to offset assets and liabilities as of March 31, 20212022 and December 31, 2020.2021.
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| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 97 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Segment Reporting |
9. Segment Reporting
We have two2 reportable business segments, which are based on the type of business activities each perform: Single-Family and Multifamily. Results of our two2 business segments are intended to reflect each segment as if it were a stand-alone business. The sum of the results for our two2 business segments equals our condensed consolidated results of operations. For additional information related to our business segments, including basis of organization and other segment activities, see “Note 10, Segment Reporting” in our 20202021 Form 10-K.
Segment Allocations and Results
The majority of our revenues and expenses are directly associated with each respective business segment and are included in determining its operating results. Those revenues and expenses that are not directly attributable to a particular business segment are allocated based on the size of each segment’s guaranty book of business. The substantial majority of the gains and losses associated with our risk management derivatives, including the impact of hedge accounting, are allocated to our Single-Family business segment.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 100 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Segment Reporting |
The following table displays our segment results.
| | | For the Three Months Ended March 31, | | | For the Three Months Ended March 31, | |
| | 2021 | | 2020 | | | 2022 | | 2021 | |
| | Single-Family | | Multifamily | | Total | | Single-Family | | Multifamily | | Total | | | Single-Family | | Multifamily | | Total | | Single-Family | | Multifamily | | Total | |
| | (Dollars in millions) | | | (Dollars in millions) | |
Net interest income(1) | Net interest income(1) | | $ | 5,894 | | | $ | 848 | | | $ | 6,742 | | | $ | 4,541 | | | $ | 806 | | | $ | 5,347 | | | Net interest income(1) | | $ | 6,255 | | | $ | 1,144 | | | $ | 7,399 | | | $ | 5,894 | | | $ | 848 | | | $ | 6,742 | | |
Fee and other income(2) | Fee and other income(2) | | 62 | | | 25 | | | 87 | | | 94 | | | 26 | | | 120 | | | Fee and other income(2) | | 61 | | | 22 | | | 83 | | | 62 | | | 25 | | | 87 | | |
| Net revenues | Net revenues | | 5,956 | | | 873 | | | 6,829 | | | 4,635 | | | 832 | | | 5,467 | | | Net revenues | | 6,316 | | | 1,166 | | | 7,482 | | | 5,956 | | | 873 | | | 6,829 | | |
Investment gains (losses), net(3) | Investment gains (losses), net(3) | | 64 | | | (19) | | | 45 | | | (152) | | | (6) | | | (158) | | | Investment gains (losses), net(3) | | (66) | | | (36) | | | (102) | | | 64 | | | (19) | | | 45 | | |
Fair value gains (losses), net(4) | Fair value gains (losses), net(4) | | 740 | | | 44 | | | 784 | | | (460) | | | 184 | | | (276) | | | Fair value gains (losses), net(4) | | 527 | | | (47) | | | 480 | | | 740 | | | 44 | | | 784 | | |
| Administrative expenses | Administrative expenses | | (623) | | | (125) | | | (748) | | | (629) | | | (120) | | | (749) | | | Administrative expenses | | (683) | | | (125) | | | (808) | | | (623) | | | (125) | | | (748) | | |
Credit-related income (expense):(5) | Credit-related income (expense):(5) | | | Credit-related income (expense):(5) | | |
| Benefit (provision) for credit losses | Benefit (provision) for credit losses | | 662 | | | 103 | | | 765 | | | (2,172) | | | (411) | | | (2,583) | | | Benefit (provision) for credit losses | | (270) | | | 30 | | | (240) | | | 662 | | | 103 | | | 765 | | |
| Foreclosed property income (expense) | Foreclosed property income (expense) | | 17 | | | (12) | | | 5 | | | (78) | | | (2) | | | (80) | | | Foreclosed property income (expense) | | 34 | | | 5 | | | 39 | | | 17 | | | (12) | | | 5 | | |
| Total credit-related income (expense) | Total credit-related income (expense) | | 679 | | | 91 | | | 770 | | | (2,250) | | | (413) | | | (2,663) | | | Total credit-related income (expense) | | (236) | | | 35 | | | (201) | | | 679 | | | 91 | | | 770 | | |
TCCA fees(6) | TCCA fees(6) | | (731) | | | 0 | | | (731) | | | (637) | | | 0 | | | (637) | | | TCCA fees(6) | | (824) | | | — | | | (824) | | | (731) | | | — | | | (731) | | |
Credit enhancement expense(7) | Credit enhancement expense(7) | | (226) | | | (58) | | | (284) | | | (316) | | | (60) | | | (376) | | | Credit enhancement expense(7) | | (210) | | | (68) | | | (278) | | | (226) | | | (58) | | | (284) | | |
Change in expected credit enhancement recoveries(8) | Change in expected credit enhancement recoveries(8) | | (16) | | | (15) | | | (31) | | | 58 | | | 130 | | | 188 | | | Change in expected credit enhancement recoveries(8) | | 69 | | | (9) | | | 60 | | | (16) | | | (15) | | | (31) | | |
| Other expenses, net | Other expenses, net | | (287) | | | (32) | | | (319) | | | (163) | | | (55) | | | (218) | | | Other expenses, net | | (198) | | | (38) | | | (236) | | | (287) | | | (32) | | | (319) | | |
| Income before federal income taxes | Income before federal income taxes | | 5,556 | | | 759 | | | 6,315 | | | 86 | | | 492 | | | 578 | | | Income before federal income taxes | | 4,695 | | | 878 | | | 5,573 | | | 5,556 | | | 759 | | | 6,315 | | |
| Provision for federal income taxes | Provision for federal income taxes | | (1,162) | | | (160) | | | (1,322) | | | (18) | | | (99) | | | (117) | | | Provision for federal income taxes | | (986) | | | (179) | | | (1,165) | | | (1,162) | | | (160) | | | (1,322) | | |
| Net income | Net income | | $ | 4,394 | | | $ | 599 | | | $ | 4,993 | | | $ | 68 | | | $ | 393 | | | $ | 461 | | | Net income | | $ | 3,709 | | | $ | 699 | | | $ | 4,408 | | | $ | 4,394 | | | $ | 599 | | | $ | 4,993 | | |
(1)Net interest income primarily consists of guaranty fees received as compensation for assuming and managing the credit risk on loans underlying Fannie Mae MBS held by third parties for the respective business segment, and the difference between the interest income earned on the respective business segment’s mortgage assets in our retained mortgage portfolio and the interest expense associated with the debt funding those assets. Revenues from single-family guaranty fees include revenues generated by the 10 basis point increase in guaranty fees pursuant to the TCCA, the incremental revenue from which is remitted to Treasury and not retained by us. Also includes yield maintenance feesrevenue we recognized on the prepayment of multifamily loans.
(2)Single-family fee and other income primarily consists of compensation for engaging in structured transactions and providing other lender services. Multifamily fee and other income consists of fees associated with Multifamily business activities.activities, including credit enhancements for tax-exempt multifamily housing revenue bonds.
(3)Single-family investment gains and losses primarily consist of gains and losses on the sale of mortgage assets. Multifamily investment gains and losses primarily consistsconsist of gains and losses on resecuritization activity.
(4)Single-family fair value gains and losses primarily consist of fair value gains and losses on risk management and mortgage commitment derivatives, trading securities, fair value option debt, and other financial instruments associated with our single-family guaranty book of business. Multifamily fair value gains and losses primarily consist of fair value gains and losses on MBS commitment derivatives, trading securities and other financial instruments associated with our multifamily guaranty book of business.
| | | | | | | | |
| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 98 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Segment Reporting |
(5)Credit-related income or expense is based on the guaranty book of business of the respective business segment and consists of the applicable segment’s benefit or provision for credit losses and foreclosed property income or expense on loans underlying the segment’s guaranty book of business.
(6)Consists of the portion of our single-family guaranty fees that is remitted to Treasury pursuant to the TCCA.
(7)Single-family credit enhancement expense consists of costs associated with our freestanding credit enhancements, which include primarily costs associated with our Credit Insurance Risk TransferTM (“CIRTTM”), Connecticut Avenue Securities® (“CAS”) and enterprise-paid mortgage insurance (“EPMI”) programs. Multifamily credit enhancement expense primarily consists of costs associated with our Multifamily CIRTTM (“MCIRTTM”) and Multifamily Connecticut Avenue SecuritiesTM (“MCAS”MCASTM”) programs as well as amortization expense for certain lender risk-sharing programs. Excludes CAS transactions accounted for as debt instruments and credit risk transfer programs accounted for as derivative instruments.
(8)Consists of change in benefits recognized from our freestanding credit enhancements, primarily from our CAS and CIRT programs as well as certain lender risk-sharing arrangements, including our multifamily Delegated Underwriting and Servicing (“DUS®”) program. See “Note 1, Summary of Significant Accounting Policies” in our 2020 Form 10-K for more information on our change in presentation.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 101 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk |
10. Concentrations of Credit Risk
Risk Characteristics of our Guaranty Book of Business
One of the measures by which we gauge our credit risk is the delinquency status of the mortgage loans in our guaranty book of business.
For single-family and multifamily loans, we use this information, in conjunction with housing market and other economic data, to structure our pricing and our eligibility and underwriting criteria to reflect the current risk of loans with higher-risk characteristics, and in some cases we decide to significantly reduce our participation in riskier loan product categories. Management also uses this data together with other credit risk measures to identify key trends that guide the development of our loss mitigation strategies.
We report the delinquency status of our single-family and multifamily guaranty book of business below. We report loans receiving COVID-19-related payment forbearance as delinquent according to the contractual terms of the loans.
Single-Family Credit Risk Characteristics
For single-family loans, management monitors the serious delinquency rate, which is the percentage of single-family loans, based on the number of loans, that are 90 days or more past due or in the foreclosure process, and loans that have higher risk characteristics, such as high mark-to-market LTV ratios.
The following tables display the delinquency status and serious delinquency rates for specified loan categories of our single-family conventional guaranty book of business.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of |
| March 31, 2021 | | December 31, 2020 |
| 30 Days Delinquent | | 60 Days Delinquent | | Seriously Delinquent(1) | | 30 Days Delinquent | | 60 Days Delinquent | | Seriously Delinquent(1) |
| Percentage of single-family conventional guaranty book of business based on UPB | 0.62 | % | | 0.24 | % | | 2.72 | % | | 0.88 | % | | 0.33 | % | | 3.10 | % |
| Percentage of single-family conventional loans based on loan count | 0.71 | | | 0.26 | | | 2.58 | | | 1.02 | | | 0.36 | | | 2.87 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| As of |
| March 31, 2021 | | December 31, 2020 |
| Percentage of Single-Family Conventional Guaranty Book of Business Based on UPB | | Serious Delinquency Rate(1) | | Percentage of Single-Family Conventional Guaranty Book of Business Based on UPB | | Serious Delinquency Rate(1) |
| Estimated mark-to-market LTV ratio: | | | | | | | |
| Greater than 100% | * | | 21.81 | % | | * | | 22.43 | % |
| Geographical distribution: | | | | | | | |
| California | 19 | % | | 2.31 | | | 19 | % | | 2.62 | |
| Florida | 6 | | | 3.60 | | | 6 | | | 4.17 | |
| Illinois | 3 | | | 3.02 | | | 3 | | | 3.10 | |
| New Jersey | 4 | | | 4.04 | | | 3 | | | 4.57 | |
| New York | 5 | | | 4.34 | | | 5 | | | 4.79 | |
| All other states | 63 | | | 2.34 | | | 64 | | | 2.59 | |
| Product distribution: | | | | | | | |
| Alt-A | 1 | | | 8.85 | | | 1 | | | 9.32 | |
| Vintages: | | | | | | | |
| 2004 and prior | 2 | | | 5.66 | | | 2 | | | 5.88 | |
| 2005-2008 | 2 | | | 9.65 | | | 2 | | | 9.98 | |
| 2009-2021 | 96 | | | 2.13 | | | 96 | | | 2.39 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
* Represents less than 0.5% of single-family conventional guaranty book of business. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of |
| March 31, 2022 | | December 31, 2021 |
| 30 Days Delinquent | | 60 Days Delinquent | | Seriously Delinquent(1) | | 30 Days Delinquent | | 60 Days Delinquent | | Seriously Delinquent(1) |
| Percentage of single-family conventional guaranty book of business based on UPB | 0.61 | % | | 0.16 | % | | 0.94 | % | | 0.73 | % | | 0.16 | % | | 1.20 | % |
| Percentage of single-family conventional loans based on loan count | 0.72 | | | 0.19 | | | 1.01 | | | 0.86 | | | 0.20 | | | 1.25 | |
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 10299 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk |
| | | | | | | | | | | | | | | | | | | | | | | |
| As of |
| March 31, 2022 | | December 31, 2021 |
| Percentage of Single-Family Conventional Guaranty Book of Business Based on UPB | | Serious Delinquency Rate(1) | | Percentage of Single-Family Conventional Guaranty Book of Business Based on UPB | | Serious Delinquency Rate(1) |
| Estimated mark-to-market LTV ratio: | | | | | | | |
| 80.01% to 90% | 5 | % | | 0.72 | % | | 5 | % | | 0.88 | % |
| 90.01% to 100% | 2 | | | 0.47 | | | 2 | | | 0.51 | |
| Greater than 100% | * | | 10.86 | | | * | | 12.41 | |
| Geographical distribution: | | | | | | | |
| California | 19 | | | 0.79 | | | 19 | | | 1.01 | |
| Florida | 6 | | | 1.21 | | | 6 | | | 1.59 | |
| Illinois | 3 | | | 1.28 | | | 3 | | | 1.55 | |
| New Jersey | 3 | | | 1.49 | | | 3 | | | 1.90 | |
| New York | 5 | | | 1.87 | | | 5 | | | 2.24 | |
| All other states | 64 | | | 0.95 | | | 64 | | | 1.16 | |
| | | | | | | |
| | | | | | | |
| Vintages: | | | | | | | |
| 2004 and prior | 1 | | | 3.12 | | | 1 | | | 3.48 | |
| 2005-2008 | 2 | | | 5.14 | | | 2 | | | 5.87 | |
| 2009-2022 | 97 | | | 0.81 | | | 97 | | | 1.01 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
* Represents less than 0.5% of single-family conventional guaranty book of business.
(1)Based on loan count, consists of single-family conventional loans that were 90 days or more past due or in the foreclosure process as of March 31, 20212022 or December 31, 2020.2021.
Multifamily Credit Risk Characteristics
For multifamily loans, management monitors the serious delinquency rate, which is the percentage of multifamily loans, based on unpaid principal balance, that are 60 days or more past due, and loans with other higher risk characteristics to determine the overall credit quality of our multifamily book of business. Higher risk characteristics include, but are not limited to, current DSCRdebt service coverage ratio (“DSCR”) below 1.0 and original LTV ratios greater than 80%. We stratify multifamily loans into different internal risk categories based on the credit risk inherent in each individual loan.
The following tables display the delinquency status and serious delinquency rates for specified loan categories of our multifamily guaranty book of business.
| | | | | | | | | | | | | | | | | | | | | | | |
| As of |
| March 31, 2021(1) | | December 31, 2020(1) |
| 30 Days Delinquent | | Seriously Delinquent(2) | | 30 Days Delinquent | | Seriously Delinquent(2) |
| Percentage of multifamily guaranty book of business | 0.37 | % | | 0.66 | % | | 0.29 | % | | 0.98 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| As of |
| March 31, 2022(1) | | December 31, 2021(1) |
| 30 Days Delinquent | | Seriously Delinquent(2) | | 30 Days Delinquent | | Seriously Delinquent(2) |
| Percentage of multifamily guaranty book of business | 0.02 | % | | 0.38 | % | | 0.03 | % | | 0.42 | % |
| | | As of | | As of |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | Percentage of Multifamily Guaranty Book of Business(1) | | Serious Delinquency Rate(2)(3) | | Percentage of Multifamily Guaranty Book of Business(1) | | Serious Delinquency Rate(2)(3) | | Percentage of Multifamily Guaranty Book of Business(1) | | Serious Delinquency Rate(2)(3) | | Percentage of Multifamily Guaranty Book of Business(1) | | Serious Delinquency Rate(2)(3) |
| Original LTV ratio: | Original LTV ratio: | | | | | | | | Original LTV ratio: | | | | | | | |
| Greater than 80% | Greater than 80% | 1 | % | | 0.86 | % | | 1 | % | | 1.04 | % | Greater than 80% | 1 | % | | 0.13 | % | | 1 | % | | 0.13 | % |
| Less than or equal to 80% | Less than or equal to 80% | 99 | | | 0.66 | | | 99 | | | 0.98 | | Less than or equal to 80% | 99 | | | 0.38 | | | 99 | | | 0.42 | |
Current DSCR below 1.0(4) | Current DSCR below 1.0(4) | 2 | | | 18.51 | | | 2 | | | 21.19 | | Current DSCR below 1.0(4) | 2 | | | 10.16 | | | 2 | | | 13.90 | |
(1)Calculated based on the aggregate unpaid principal balance of multifamily loans for each category divided by the aggregate unpaid principal balance of loans in our multifamily guaranty book of business.
| | | | | | | | |
| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 100 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk |
(2)Consists of multifamily loans that were 60 days or more past due as of the dates indicated.
(3)Calculated based on the unpaid principal balance of multifamily loans that were seriously delinquent divided by the aggregate unpaid principal balance of multifamily loans for each category included in our multifamily guaranty book of business.
(4)Our estimates of current DSCRs are based on the latest available income information from annual statements for these properties. Although we use the most recently available results of our multifamily borrowers, there is a lag in reporting, which typically can range from 3 to 6 months but in some cases may be longer. As a result, the financial information we have received from borrowers to date may not reflect the most recent impacts of COVID-19. For certain properties, we do not receive updated financial information.
Other Concentrations
Mortgage Insurers. Mortgage insurance “risk in force” refers to our maximum potential loss recovery under the applicable mortgage insurance policies in force and is generally based on the loan-level insurance coverage percentage and, if applicable, any aggregate pool loss limit, as specified in the policy.
The following table displays our total mortgage insurance risk in force by primary and pool insurance, as well as the total risk-in-force mortgage insurance coverage as a percentage of the single-family conventional guaranty book of business.
| | | As of | | As of |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | Risk in Force | | Percentage of Single-Family Conventional Guaranty Book of Business | | Risk in Force | | Percentage of Single-Family Conventional Guaranty Book of Business | | Risk in Force | | Percentage of Single-Family Conventional Guaranty Book of Business | | Risk in Force | | Percentage of Single-Family Conventional Guaranty Book of Business |
| | (Dollars in millions) | | (Dollars in millions) |
| Mortgage insurance risk in force: | Mortgage insurance risk in force: | | Mortgage insurance risk in force: | |
| Primary mortgage insurance | Primary mortgage insurance | | $ | 169,582 | | | $ | 170,890 | | | Primary mortgage insurance | | $ | 176,962 | | | $ | 176,587 | | |
| Pool mortgage insurance | Pool mortgage insurance | | 285 | | | 291 | | | Pool mortgage insurance | | 253 | | | 261 | | |
| Total mortgage insurance risk in force | Total mortgage insurance risk in force | | $ | 169,867 | | | 5% | | $ | 171,181 | | | 5% | Total mortgage insurance risk in force | | $ | 177,215 | | | 5% | | $ | 176,848 | | | 5% |
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q
| 103 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk |
Mortgage insurance does not protect us from all losses on covered loans. For example, mortgage insurance does not cover property damage that is not covered by the hazard insurance we require, and such damage may result in a reduction to, or a denial of, mortgage insurance benefits. Specifically, a property damaged by a flood that was outside a Federal Emergency Management Agency (“FEMA”)-identified Special Flood Hazard Area, where we require coverage, or a property damaged by an earthquake are the most likely scenarios where property damage may result in a loss event not covered by hazard insurance.
The table below displays our mortgage insurer counterparties that provided approximately 10% or more of the risk-in-force mortgage insurance coverage on mortgage loans in our single-family conventional guaranty book of business.
| | | Percentage of Risk-in-Force Coverage by Mortgage Insurer | | Percentage of Risk-in-Force Coverage by Mortgage Insurer |
| | As of | | As of |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| Counterparty:(1) | Counterparty:(1) | | | Counterparty:(1) | | |
| Arch Capital Group Ltd. | Arch Capital Group Ltd. | | 20 | % | | 21 | % | Arch Capital Group Ltd. | | 19 | % | | 19 | % |
| Mortgage Guaranty Insurance Corp. | Mortgage Guaranty Insurance Corp. | | 18 | | | 18 | | Mortgage Guaranty Insurance Corp. | | 19 | | | 19 | |
| Radian Guaranty, Inc. | Radian Guaranty, Inc. | | 18 | | | 19 | | Radian Guaranty, Inc. | | 17 | | | 17 | |
| Genworth Mortgage Insurance Corp. | | 17 | | | 16 | | |
Enact Mortgage Insurance Corp.(2) | | Enact Mortgage Insurance Corp.(2) | | 17 | | | 17 | |
| Essent Guaranty, Inc. | Essent Guaranty, Inc. | | 16 | | | 16 | | Essent Guaranty, Inc. | | 16 | | | 16 | |
| National Mortgage Insurance Corp. | | National Mortgage Insurance Corp. | | 11 | | | 11 | |
| Others | Others | | 11 | | | 10 | | Others | | 1 | | | 1 | |
| Total | Total | | 100 | % | | 100 | % | Total | | 100 | % | | 100 | % |
(1)Insurance coverage amounts provided for each counterparty may include coverage provided by affiliates and subsidiaries of the counterparty.
NaN of our mortgage insurer counterparties that are currently not approved to write new business—PMI(2)Genworth Mortgage Insurance Co. (“PMI”), Triad Guaranty Insurance Corporation (“Triad”) and RepublicCorp. was renamed Enact Mortgage Insurance Company (“RMIC”)—are currently in run-off. A mortgage insurer that is in run-off continues to collect renewal premiums and process claims on its existing insurance business, but no longer writes new insurance, which increases the risk that the mortgage insurer will fail to pay claims fully. Entering run-off may limit sources of profits and liquidity for the mortgage insurer and could also cause the quality and speed of its claims processing to deteriorate. These 3 mortgage insurers provided a combined $2.2 billion, or 1%, of the risk-in-force mortgage insurance coverage of our single-family conventional guaranty book of business as of March 31, 2021.
PMI and Triad have been paying only a portion of policyholder claims and deferring the remaining portion. PMI is currently paying 77.5% of claims under its mortgage insurance policies in cash and is deferring the remaining 22.5%, and Triad is currently paying 75% of claims in cash and deferring the remaining 25%. It is uncertain whether PMI or Triad will be permitted in the future to pay their deferred policyholder claims or increase or decrease the amount of cash they pay on claims. RMIC is no longer deferring payments on policyholder claims, but remains in run-off.Corp. effective February 7, 2022.
We have counterparty credit risk relating to the potential insolvency of, or non-performance by, monoline mortgage insurers that insure single-family loans we purchase or guarantee. There is risk that these counterparties may fail to fulfill their obligations to pay our claims under insurance policies. On at least a quarterly basis, we assess our mortgage insurer counterparties’ respective abilities to fulfill their obligations to us. Our assessment includes financial reviews and analyses of the insurers’ portfolios and capital adequacy. If we determine that it is probable that we will not collect all of our claims from one or more of our mortgage insurer counterparties, it could increase our loss reserves, which could adversely affect our results of operations, liquidity, financial condition and net worth.
When we estimate the credit losses that are inherent in our mortgage loans and under the terms of our guaranty obligations, we also consider the recoveries that we willexpect to receive onfrom primary mortgage insurance, as mortgage insurance recoveries would reduce the severity of the loss associated with defaulted loans.loans if the borrower defaults and title to
| | | | | | | | |
| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 101 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk |
the property is subsequently transferred. Mortgage insurance does not cover credit losses that result from a reduction in mortgage interest paid by the borrower in connection with a loan modification, forbearance of principal, or forbearance of scheduled loan payments. We evaluate the financial condition of our mortgage insurer counterparties and adjust the contractually due recovery amounts to ensure that expected credit 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 increase our loss reserves. As of March 31, 20212022 and December 31, 2020,2021, our estimated benefit from mortgage insurance, which is based on estimated credit losses as of period end, reduced our loss reserves by $1.2 billion$655 million and $1.4 billion,$559 million, respectively.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 104 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk |
As of March 31, 20212022 and December 31, 2020,2021, we had outstanding receivables of $542$515 million and $560$533 million, respectively, recorded in “Other assets” in our condensed consolidated balance sheets related to amounts claimed on insured, defaulted loans excluding government-insured loans. As of March 31, 20212022 and December 31, 2020,2021, we assessed these outstanding receivables for collectability, and established a valuation allowance of $480$463 million and $497$479 million, respectively, which reduced our claim receivable to the amount considered probable of collection.respectively.
Mortgage Servicers and Sellers. 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, including loss mitigation, on our behalf. Our mortgage servicers and sellers may also be obligated to repurchase loans or foreclosedreal estate owned (“REO”) properties, reimburse us for losses or provide other remedies under certain circumstances, such as if it is determined that the mortgage loan did not meet our underwriting or eligibility requirements, if certain loan representations and warranties are violated or if mortgage insurers rescind coverage. Our representation and warranty framework does not require repurchase for loans that have breaches of certain selling representations and warranties if they have met specified criteria for relief.
Our business with mortgage servicers is concentrated. The table below displays the percentage of our single-family guaranty book of business serviced by our top five depository single-family mortgage servicers and top five non-depository single-family mortgage servicers (i.e., servicers that are not insured depository institutions), and identifies one depository servicer that serviced 10% or more than 10% of our single-family guaranty book of business as of December 31, 2021, based on unpaid principal balance.
| | | Percentage of Single-Family
Guaranty Book of Business | | Percentage of Single-Family
Guaranty Book of Business |
| | As of | | As of |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| Wells Fargo Bank, N.A. (together with its affiliates) | Wells Fargo Bank, N.A. (together with its affiliates) | | 12 | % | | 13 | % | Wells Fargo Bank, N.A. (together with its affiliates) | | 9 | % | | 10 | % |
| Remaining top five depository servicers | Remaining top five depository servicers | | 10 | | | 11 | | Remaining top five depository servicers | | 12 | | | 11 | |
| Top five non-depository servicers | Top five non-depository servicers | | 23 | | | 24 | | Top five non-depository servicers | | 23 | | | 23 | |
| Total | Total | | 45 | % | | 48 | % | Total | | 44 | % | | 44 | % |
Compared with depository financial institutions, our non-depository servicers pose additional risks because they may not have the same financial strength or operational capacity, or be subject to the same level of regulatory oversight as depository financial institutions.
The table below displays the percentage of our multifamily guaranty book of business serviced by our top five multifamily mortgage servicers, and identifies two servicers that serviced 10% or more of our multifamily guaranty book of business based on unpaid principal balance.
| | | Percentage of Multifamily
Guaranty Book of Business | | Percentage of Multifamily
Guaranty Book of Business |
| | As of | | As of |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| Walker & Dunlop, Inc. | Walker & Dunlop, Inc. | | 13 | % | | 12 | % | Walker & Dunlop, Inc. | | 13 | % | | 12 | % |
| Wells Fargo Bank, N.A. (together with its affiliates) | Wells Fargo Bank, N.A. (together with its affiliates) | | 11 | | | 12 | | Wells Fargo Bank, N.A. (together with its affiliates) | | 11 | | | 11 | |
| Remaining top five servicers | Remaining top five servicers | | 24 | | | 24 | | Remaining top five servicers | | 24 | | | 24 | |
| Total | Total | | 48 | % | | 48 | % | Total | | 48 | % | | 47 | % |
| | | | | | | | |
| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 102 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk |
If a significant mortgage servicer or seller counterparty, or a number of mortgage servicers or sellers, fails to meet their obligations to us, it could adversely affect our results of operations and financial condition. We mitigate these risks in several ways, including:
•establishing minimum standards and financial requirements for our servicers;
•monitoring financial and portfolio performance as compared with peers and internal benchmarks; and
•for our largest mortgage servicers, conducting periodic financial reviews to confirm compliance with servicing guidelines and servicing performance expectations.
We may take one or more of the following actions to mitigate our credit exposure to mortgage servicers that present a higher risk:
•require a guaranty of obligations by higher-rated entities;
•transfer exposure to third parties;
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 105 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Concentrations of Credit Risk |
•require collateral;
•establish more stringent financial requirements;
•work with underperforming major servicers to improve operational processes; and
•suspend or terminate the selling and servicing relationship if deemed necessary.
Derivatives Counterparties. For information on credit risk associated with our derivative transactions and repurchase agreements see “Note 8, Derivative Instruments” and “Note 11, Netting Arrangements.”
11. Netting Arrangements
We use master netting arrangements, which allow us to offset certain financial instruments and collateral with the same counterparty, to minimize counterparty credit exposure. The tables below display information related to derivatives, securities purchased under agreements to resell or similar arrangements, and securities sold under agreements to repurchase or similar arrangements, which are subject to an enforceable master netting arrangement or similar agreement that are either offset or not offset in our condensed consolidated balance sheets.
| | | As of March 31, 2021 | | As of March 31, 2022 | | |
| | | Gross Amount Offset(1) | | Net Amount Presented in our Condensed Consolidated Balance Sheets | | Amounts Not Offset in our Condensed Consolidated Balance Sheets | | | | Gross Amount Offset(1) | | Net Amount Presented in our Condensed Consolidated Balance Sheets | | Amounts Not Offset in our Condensed Consolidated Balance Sheets | | | |
| | Gross Amount | | Financial Instruments(2) | | Collateral(3) | | Net Amount | | Gross Amount | | Financial Instruments(2) | | Collateral(3) | | Net Amount | | |
| | (Dollars in millions) | | (Dollars in millions) | | |
| Assets: | Assets: | | Assets: | | |
| OTC risk management derivatives | OTC risk management derivatives | | $ | 670 | | | $ | (661) | | | $ | 9 | | | $ | 0 | | | $ | 0 | | | $ | 9 | | OTC risk management derivatives | | $ | 191 | | | $ | (111) | | | $ | 80 | | | $ | — | | | $ | — | | | $ | 80 | | | |
| Cleared risk management derivatives | Cleared risk management derivatives | | 0 | | | 6 | | | 6 | | | 0 | | | 0 | | | 6 | | Cleared risk management derivatives | | — | | | 2 | | | 2 | | | — | | | — | | | 2 | | | |
| Mortgage commitment derivatives | Mortgage commitment derivatives | | 2,596 | | | 0 | | | 2,596 | | | (801) | | | (85) | | | 1,710 | | Mortgage commitment derivatives | | 1,739 | | | — | | | 1,739 | | | (631) | | | — | | | 1,108 | | | |
| Total derivative assets | Total derivative assets | | 3,266 | | | (655) | | | 2,611 | | (4) | | (801) | | | (85) | | | 1,725 | | Total derivative assets | | 1,930 | | | (109) | | | 1,821 | | (4) | | (631) | | | — | | | 1,190 | | | |
Securities purchased under agreements to resell or similar arrangements(5) | Securities purchased under agreements to resell or similar arrangements(5) | | 66,437 | | | 0 | | | 66,437 | | | 0 | | | (66,437) | | | 0 | | Securities purchased under agreements to resell or similar arrangements(5) | | 55,232 | | | — | | | 55,232 | | | — | | | (55,232) | | | — | | | |
| Total assets | Total assets | | $ | 69,703 | | | $ | (655) | | | $ | 69,048 | | | $ | (801) | | | $ | (66,522) | | | $ | 1,725 | | Total assets | | $ | 57,162 | | | $ | (109) | | | $ | 57,053 | | | $ | (631) | | | $ | (55,232) | | | $ | 1,190 | | | |
| Liabilities: | Liabilities: | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | |
| OTC risk management derivatives | OTC risk management derivatives | | $ | (1,720) | | | $ | 1,646 | | | $ | (74) | | | $ | 0 | | | $ | 0 | | | $ | (74) | | OTC risk management derivatives | | $ | (2,916) | | | $ | 2,916 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | |
| Cleared risk management derivatives | Cleared risk management derivatives | | 0 | | | (14) | | | (14) | | | 0 | | | 14 | | | 0 | | Cleared risk management derivatives | | — | | | (35) | | | (35) | | | — | | | 35 | | | — | | | |
| Mortgage commitment derivatives | Mortgage commitment derivatives | | (1,972) | | | 0 | | | (1,972) | | | 801 | | | 159 | | | (1,012) | | Mortgage commitment derivatives | | (1,141) | | | — | | | (1,141) | | | 631 | | | 5 | | | (505) | | | |
| Total derivative liabilities | | (3,692) | | | 1,632 | | | (2,060) | | (4) | | 801 | | | 173 | | | (1,086) | | |
| | | Total liabilities | Total liabilities | | $ | (3,692) | | | $ | 1,632 | | | $ | (2,060) | | | $ | 801 | | | $ | 173 | | | $ | (1,086) | | Total liabilities | | $ | (4,057) | | | $ | 2,881 | | | $ | (1,176) | | (4) | | $ | 631 | | | $ | 40 | | | $ | (505) | | | |
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 106103 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Netting Arrangements |
|
|
| | | As of December 31, 2020 | |
| | | As of December 31, 2021 | |
| | | | | | | Gross Amount Offset(1) | | | Net Amount Presented in our Condensed Consolidated Balance Sheets | | Amounts Not Offset in our Condensed Consolidated Balance Sheets | | | | | | | | | | Gross Amount Offset(1) | | | Net Amount Presented in our Condensed Consolidated Balance Sheets | | Amounts Not Offset in our Condensed Consolidated Balance Sheets | | | |
| | | Gross Amount | | | | | Financial Instruments(2) | | Collateral(3) | | | Net Amount | | | | Gross Amount | | | Gross Amount Offset(1) | | Net Amount Presented in our Condensed Consolidated Balance Sheets | Financial Instruments(2) | | Collateral(3) | | | Net Amount | |
| | | (Dollars in millions) | | | | (Dollars in millions) | |
| Assets: | Assets: | | | | | | | | | | | | | Assets: | | | | | | | | | | | | |
| OTC risk management derivatives | OTC risk management derivatives | | | $ | 962 | | | | | $ | (952) | | | | | $ | 10 | | | $ | 0 | | | $ | 0 | | | | | $ | 10 | | | OTC risk management derivatives | | | $ | 239 | | | | | $ | (237) | | | | | $ | 2 | | | $ | — | | | $ | — | | | | | $ | 2 | | |
| Cleared risk management derivatives | Cleared risk management derivatives | | | 0 | | | | | 47 | | | | | 47 | | | 0 | | | 0 | | | | | 47 | | | Cleared risk management derivatives | | | — | | | | | — | | | | | — | | | — | | | — | | | | | — | | |
| Mortgage commitment derivatives | Mortgage commitment derivatives | | | 989 | | | | | 0 | | | | | 989 | | | (406) | | | (53) | | | | | 530 | | | Mortgage commitment derivatives | | | 169 | | | | | — | | | | | 169 | | | (133) | | | — | | | | | 36 | | |
| Total derivative assets | Total derivative assets | | | 1,951 | | | | | (905) | | | | | 1,046 | | (4) | | (406) | | | (53) | | | | | 587 | | | Total derivative assets | | | 408 | | | | | (237) | | | | | 171 | | (4) | | (133) | | | — | | | | | 38 | | |
Securities purchased under agreements to resell or similar arrangements(5) | Securities purchased under agreements to resell or similar arrangements(5) | | | 46,644 | | | | | 0 | | | | | 46,644 | | | 0 | | | (46,644) | | | | | 0 | | | Securities purchased under agreements to resell or similar arrangements(5) | | | 64,843 | | | | | — | | | | | 64,843 | | | — | | | (64,843) | | | | | — | | |
| Total assets | Total assets | | | $ | 48,595 | | | | | $ | (905) | | | | | $ | 47,690 | | | $ | (406) | | | $ | (46,697) | | | | | $ | 587 | | | Total assets | | | $ | 65,251 | | | | | $ | (237) | | | | | $ | 65,014 | | | $ | (133) | | | $ | (64,843) | | | | | $ | 38 | | |
| Liabilities: | Liabilities: | | | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | | | | |
| OTC risk management derivatives | OTC risk management derivatives | | | $ | (1,015) | | | | | $ | 999 | | | | | $ | (16) | | | $ | 0 | | | $ | 0 | | | | | $ | (16) | | | OTC risk management derivatives | | | $ | (1,188) | | | | | $ | 1,183 | | | | | $ | (5) | | | $ | — | | | $ | — | | | | | $ | (5) | | |
| Cleared risk management derivatives | Cleared risk management derivatives | | | 0 | | | | | (4) | | | | | (4) | | | 0 | | | 2 | | | | | (2) | | | Cleared risk management derivatives | | | — | | | | | (10) | | | | | (10) | | | — | | | 10 | | | | | — | | |
| Mortgage commitment derivatives | Mortgage commitment derivatives | | | (1,426) | | | | | 0 | | | | | (1,426) | | | 406 | | | 1,017 | | | | | (3) | | | Mortgage commitment derivatives | | | (197) | | | | | — | | | | | (197) | | | 133 | | | 56 | | | | | (8) | | |
| Total derivative liabilities | | | (2,441) | | | | | 995 | | | | | (1,446) | | (4) | | 406 | | | 1,019 | | | | | (21) | | | |
| | | Total liabilities | Total liabilities | | | $ | (2,441) | | | | | $ | 995 | | | | | $ | (1,446) | | | $ | 406 | | | $ | 1,019 | | | | | $ | (21) | | | Total liabilities | | | $ | (1,385) | | | | | $ | 1,173 | | | | | $ | (212) | | (4) | | $ | 133 | | | $ | 66 | | | | | $ | (13) | | |
(1)Represents the effect of the right to offset under legally enforceable master netting arrangements to settle with the same counterparty on a net basis, including cash collateral posted and received and accrued interest.
(2)Mortgage commitment derivative amounts reflect where we have recognized both an asset and a liability with the same counterparty under an enforceable master netting arrangement but we have not elected to offset the related amounts in our condensed consolidated balance sheets.
(3)Represents collateral received that has not been recognized and not offset in our condensed consolidated balance sheets, as well as collateral posted which has been recognized but not offset in our condensed consolidated balance sheets. Does not include collateral held or posted in excess of our exposure. The fair value of non-cash collateral we pledged which the counterparty was permitted to sell or repledge was $4.7$2.0 billion and $2.5 billion as of March 31, 20212022 and December 31, 2020.2021, respectively. The fair value of non-cash collateral received was $66.5$55.3 billion and $46.6$64.9 billion, of which $65.4$19.4 billion and $46.6$25.6 billion could be sold or repledged as of March 31, 20212022 and December 31, 2020,2021, respectively. NaNNone of the underlying collateral was sold or repledged as of March 31, 20212022 or December 31, 2020.2021.
(4)Excludes derivative assets of $61 million and $179$3 million as of March 31, 2021 and December 31, 2020, respectively,2022 and derivative liabilities of $46$28 million and $49$21 million recognized in our condensed consolidated balance sheets as of March 31, 20212022 and December 31, 2020,2021, respectively, that arewere not subject to enforceable master netting arrangements. We had no derivative assets recognized in our condensed consolidated balance sheets as of December 31, 2021 that were not subject to enforceable master netting arrangements.
(5)Includes $6.1$23.3 billion and $18.4$29.1 billion in securities purchased under agreements to resell classified as “Cash and cash equivalents” in our condensed consolidated balance sheets as of March 31, 20212022 and December 31, 2020,2021, respectively. Includes $5.4$14.0 billion and $15.0 billion in securities purchased under agreements to resell classified as “Restricted cash and cash equivalents” in our condensed consolidated balance sheets as of March 31, 2021. There were no securities purchased under agreements to resell classified as “Restricted cash2022 and cash equivalents” as of December 31, 2020.2021, respectively.
Derivative instruments are recorded at fair value and securities purchased under agreements to resell or similar arrangements are recorded at amortized cost in our condensed consolidated balance sheets. For a discussion of how we determine our rights to offset the assets and liabilities presented above with the same counterparty, including collateral posted or received, see “Note 14, Netting Arrangements” in our 20202021 Form 10-K.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 107 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Fair Value |
12. Fair Value
We use fair value measurements for the initial recording of certain assets and liabilities and periodic remeasurement of certain assets and liabilities on a recurring or nonrecurring basis.
Fair Value Measurement
Fair value measurement guidance defines fair value, establishes a framework for measuring fair value, and sets forth disclosures around fair value measurements. This guidance applies whenever other accounting guidance requires or permits assets or liabilities to be measured at fair value. The guidance establishes a three-level fair value hierarchy that prioritizes the inputs into the valuation techniques used to measure fair value. The 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.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 108104 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Fair Value |
observable inputs for similar assets and liabilities. The lowest priority, Level 3, is given to measurements based on unobservable inputs.
Recurring Changes in Fair Value
The following tables display our assets and liabilities measured in our condensed consolidated balance sheets at fair value on a recurring basis subsequent to initial recognition, including instruments for which we have elected the fair value option.
| | | Fair Value Measurements as of March 31, 2021 | | Fair Value Measurements as of March 31, 2022 |
| | 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 | | 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) | | (Dollars in millions) |
| Recurring fair value measurements: | Recurring fair value measurements: | | Recurring fair value measurements: | |
| Assets: | Assets: | | Assets: | |
Cash equivalents(2) | | $ | 4,050 | | | $ | — | | | $ | — | | | $ | — | | | $ | 4,050 | | | |
| | Trading securities: | Trading securities: | | Trading securities: | |
| Mortgage-related securities: | Mortgage-related securities: | | Mortgage-related securities: | |
| Fannie Mae | Fannie Mae | | 0 | | | 1,876 | | | 109 | | | — | | | 1,985 | | | Fannie Mae | | $ | — | | | $ | 1,742 | | | $ | 47 | | | $ | — | | | $ | 1,789 | | |
| Other agency | Other agency | | 0 | | | 3,440 | | | 0 | | | — | | | 3,440 | | | Other agency | | — | | | 2,710 | | | — | | | — | | | 2,710 | | |
| Private-label and other mortgage securities | Private-label and other mortgage securities | | 0 | | | 157 | | | 0 | | | — | | | 157 | | | Private-label and other mortgage securities | | — | | | 127 | | | — | | | — | | | 127 | | |
| Non-mortgage-related securities: | Non-mortgage-related securities: | | Non-mortgage-related securities: | |
| U.S. Treasury securities | U.S. Treasury securities | | 105,601 | | | 0 | | | 0 | | | — | | | 105,601 | | | U.S. Treasury securities | | 79,987 | | | — | | | — | | | — | | | 79,987 | | |
| Other securities | Other securities | | 0 | | | 73 | | | 0 | | | — | | | 73 | | | Other securities | | — | | | 16 | | | — | | | — | | | 16 | | |
| Total trading securities | Total trading securities | | 105,601 | | | 5,546 | | | 109 | | | — | | | 111,256 | | | Total trading securities | | 79,987 | | | 4,595 | | | 47 | | | — | | | 84,629 | | |
| Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
| Mortgage-related securities: | Mortgage-related securities: | | Mortgage-related securities: | |
| Fannie Mae | Fannie Mae | | 0 | | | 847 | | | 189 | | | — | | | 1,036 | | | Fannie Mae | | — | | | 58 | | | 418 | | | — | | | 476 | | |
| Other agency | Other agency | | 0 | | | 34 | | | 0 | | | — | | | 34 | | | Other agency | | — | | | 12 | | | — | | | — | | | 12 | | |
| Alt-A and subprime private-label securities | Alt-A and subprime private-label securities | | 0 | | | 4 | | | 1 | | | — | | | 5 | | | Alt-A and subprime private-label securities | | — | | | 5 | | | — | | | — | | | 5 | | |
| Mortgage revenue bonds | Mortgage revenue bonds | | 0 | | | 0 | | | 191 | | | — | | | 191 | | | Mortgage revenue bonds | | — | | | — | | | 141 | | | — | | | 141 | | |
| Other | Other | | 0 | | | 6 | | | 230 | | | — | | | 236 | | | Other | | — | | | 4 | | | 168 | | | — | | | 172 | | |
| Total available-for-sale securities | Total available-for-sale securities | | 0 | | | 891 | | | 611 | | | — | | | 1,502 | | | Total available-for-sale securities | | — | | | 79 | | | 727 | | | — | | | 806 | | |
| Mortgage loans | Mortgage loans | | 0 | | | 5,228 | | | 820 | | | — | | | 6,048 | | | Mortgage loans | | — | | | 3,824 | | | 668 | | | — | | | 4,492 | | |
| Other assets: | Other assets: | | Other assets: | |
| Risk management derivatives: | Risk management derivatives: | | Risk management derivatives: | |
| Swaps | Swaps | | 0 | | | 299 | | | 151 | | | — | | | 450 | | | Swaps | | — | | | 7 | | | 82 | | | — | | | 89 | | |
| Swaptions | Swaptions | | 0 | | | 220 | | | 0 | | | — | | | 220 | | | Swaptions | | — | | | 102 | | | — | | | — | | | 102 | | |
| Netting adjustment | Netting adjustment | | — | | | — | | | — | | | (655) | | | (655) | | | Netting adjustment | | — | | | — | | | — | | | (109) | | | (109) | | |
| Mortgage commitment derivatives | Mortgage commitment derivatives | | 0 | | | 2,596 | | | 0 | | | — | | | 2,596 | | | Mortgage commitment derivatives | | — | | | 1,739 | | | — | | | — | | | 1,739 | | |
| Credit enhancement derivatives | Credit enhancement derivatives | | 0 | | | 0 | | | 61 | | | — | | | 61 | | | Credit enhancement derivatives | | — | | | — | | | 3 | | | — | | | 3 | | |
| Total other assets | Total other assets | | 0 | | | 3,115 | | | 212 | | | (655) | | | 2,672 | | | Total other assets | | — | | | 1,848 | | | 85 | | | (109) | | | 1,824 | | |
| Total assets at fair value | Total assets at fair value | | $ | 109,651 | | | $ | 14,780 | | | $ | 1,752 | | | $ | (655) | | | $ | 125,528 | | | Total assets at fair value | | $ | 79,987 | | | $ | 10,346 | | | $ | 1,527 | | | $ | (109) | | | $ | 91,751 | | |
| | Liabilities: | Liabilities: | | Liabilities: | |
| Long-term debt: | Long-term debt: | | Long-term debt: | |
| Of Fannie Mae: | | |
| | Senior floating | | $ | 0 | | | $ | 2,954 | | | $ | 382 | | | $ | — | | | $ | 3,336 | | | |
| Total of Fannie Mae | | 0 | | | 2,954 | | | 382 | | | — | | | 3,336 | | | |
| | Of Fannie Mae | | Of Fannie Mae | | $ | — | | | $ | 1,784 | | | $ | 307 | | | $ | — | | | $ | 2,091 | | |
| | Of consolidated trusts | Of consolidated trusts | | 0 | | | 23,543 | | | 58 | | | — | | | 23,601 | | | Of consolidated trusts | | — | | | 19,956 | | | 161 | | | — | | | 20,117 | | |
| Total long-term debt | Total long-term debt | | 0 | | | 26,497 | | | 440 | | | — | | | 26,937 | | | Total long-term debt | | — | | | 21,740 | | | 468 | | | — | | | 22,208 | | |
| Other liabilities: | Other liabilities: | | Other liabilities: | |
| Risk management derivatives: | Risk management derivatives: | | Risk management derivatives: | |
| Swaps | Swaps | | 0 | | | 1,662 | | | 0 | | | — | | | 1,662 | | | Swaps | | — | | | 2,895 | | | — | | | — | | | 2,895 | | |
| Swaptions | Swaptions | | 0 | | | 58 | | | 0 | | | — | | | 58 | | | Swaptions | | — | | | 21 | | | — | | | — | | | 21 | | |
| Netting adjustment | Netting adjustment | | — | | | — | | | — | | | (1,632) | | | (1,632) | | | Netting adjustment | | — | | | — | | | — | | | (2,881) | | | (2,881) | | |
| Mortgage commitment derivatives | Mortgage commitment derivatives | | 0 | | | 1,972 | | | 0 | | | — | | | 1,972 | | | Mortgage commitment derivatives | | — | | | 1,141 | | | — | | | — | | | 1,141 | | |
| Credit enhancement derivatives | Credit enhancement derivatives | | 0 | | | 0 | | | 46 | | | — | | | 46 | | | Credit enhancement derivatives | | — | | | — | | | 28 | | | — | | | 28 | | |
| Total other liabilities | Total other liabilities | | 0 | | | 3,692 | | | 46 | | | (1,632) | | | 2,106 | | | Total other liabilities | | — | | | 4,057 | | | 28 | | | (2,881) | | | 1,204 | | |
| Total liabilities at fair value | Total liabilities at fair value | | $ | 0 | | | $ | 30,189 | | | $ | 486 | | | $ | (1,632) | | | $ | 29,043 | | | Total liabilities at fair value | | $ | — | | | $ | 25,797 | | | $ | 496 | | | $ | (2,881) | | | $ | 23,412 | | |
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 109105 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Fair Value |
| | | Fair Value Measurements as of December 31, 2020 | | Fair Value Measurements as of December 31, 2021 |
| | 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 | | 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) | | | | (Dollars in millions) | |
| Recurring fair value measurements: | Recurring fair value measurements: | | Recurring fair value measurements: | |
| Assets: | Assets: | | Assets: | |
Cash equivalents(2) | | $ | 1,120 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,120 | | | |
Cash equivalents, including restricted cash equivalents(2) | | Cash equivalents, including restricted cash equivalents(2) | | $ | 250 | | | $ | — | | | $ | — | | | $ | — | | | $ | 250 | | |
| Trading securities: | Trading securities: | | Trading securities: | |
| Mortgage-related securities: | Mortgage-related securities: | | Mortgage-related securities: | |
| Fannie Mae | Fannie Mae | | 0 | | | 2,310 | | | 94 | | | — | | | 2,404 | | | Fannie Mae | | — | | | 1,519 | | | 57 | | | — | | | 1,576 | | |
| Other agency | Other agency | | 0 | | | 3,450 | | | 1 | | | — | | | 3,451 | | | Other agency | | — | | | 2,893 | | | — | | | — | | | 2,893 | | |
| Private-label and other mortgage securities | Private-label and other mortgage securities | | 0 | | | 158 | | | 0 | | | — | | | 158 | | | Private-label and other mortgage securities | | — | | | 137 | | | — | | | — | | | 137 | | |
| Non-mortgage-related securities: | Non-mortgage-related securities: | | Non-mortgage-related securities: | |
| U.S. Treasury securities | U.S. Treasury securities | | 130,456 | | | 0 | | | 0 | | | — | | | 130,456 | | | U.S. Treasury securities | | 83,581 | | | — | | | — | | | — | | | 83,581 | | |
| Other securities | Other securities | | 0 | | | 73 | | | 0 | | | — | | | 73 | | | Other securities | | — | | | 19 | | | — | | | — | | | 19 | | |
| Total trading securities | Total trading securities | | 130,456 | | | 5,991 | | | 95 | | | — | | | 136,542 | | | Total trading securities | | 83,581 | | | 4,568 | | | 57 | | | — | | | 88,206 | | |
| Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
| Mortgage-related securities: | Mortgage-related securities: | | Mortgage-related securities: | |
| Fannie Mae | Fannie Mae | | 0 | | | 973 | | | 195 | | | — | | | 1,168 | | | Fannie Mae | | — | | | 64 | | | 431 | | | — | | | 495 | | |
| Other agency | Other agency | | 0 | | | 65 | | | 0 | | | — | | | 65 | | | Other agency | | — | | | 12 | | | — | | | — | | | 12 | | |
| Alt-A and subprime private-label securities | Alt-A and subprime private-label securities | | 0 | | | 4 | | | 2 | | | — | | | 6 | | | Alt-A and subprime private-label securities | | — | | | 3 | | | 2 | | | — | | | 5 | | |
| Mortgage revenue bonds | Mortgage revenue bonds | | 0 | | | 0 | | | 216 | | | — | | | 216 | | | Mortgage revenue bonds | | — | | | — | | | 144 | | | — | | | 144 | | |
| Other | Other | | 0 | | | 7 | | | 235 | | | — | | | 242 | | | Other | | — | | | 5 | | | 176 | | | — | | | 181 | | |
| Total available-for-sale securities | Total available-for-sale securities | | 0 | | | 1,049 | | | 648 | | | — | | | 1,697 | | | Total available-for-sale securities | | — | | | 84 | | | 753 | | | — | | | 837 | | |
| Mortgage loans | Mortgage loans | | 0 | | | 5,629 | | | 861 | | | — | | | 6,490 | | | Mortgage loans | | — | | | 4,209 | | | 755 | | | — | | | 4,964 | | |
| Other assets: | Other assets: | | Other assets: | |
| Risk management derivatives: | Risk management derivatives: | | Risk management derivatives: | |
| Swaps | Swaps | | 0 | | | 376 | | | 203 | | | — | | | 579 | | | Swaps | | — | | | 25 | | | 152 | | | — | | | 177 | | |
| Swaptions | Swaptions | | 0 | | | 383 | | | 0 | | | — | | | 383 | | | Swaptions | | — | | | 62 | | | — | | | — | | | 62 | | |
| Netting adjustment | Netting adjustment | | — | | | — | | | — | | | (905) | | | (905) | | | Netting adjustment | | — | | | — | | | — | | | (237) | | | (237) | | |
| Mortgage commitment derivatives | Mortgage commitment derivatives | | 0 | | | 989 | | | 0 | | | — | | | 989 | | | Mortgage commitment derivatives | | — | | | 169 | | | — | | | — | | | 169 | | |
| Credit enhancement derivatives | | 0 | | | 0 | | | 179 | | | — | | | 179 | | | |
| | Total other assets | Total other assets | | 0 | | | 1,748 | | | 382 | | | (905) | | | 1,225 | | | Total other assets | | — | | | 256 | | | 152 | | | (237) | | | 171 | | |
| Total assets at fair value | Total assets at fair value | | $ | 131,576 | | | $ | 14,417 | | | $ | 1,986 | | | $ | (905) | | | $ | 147,074 | | | Total assets at fair value | | $ | 83,831 | | | $ | 9,117 | | | $ | 1,717 | | | $ | (237) | | | $ | 94,428 | | |
| | Liabilities: | Liabilities: | | Liabilities: | |
| Long-term debt: | Long-term debt: | | Long-term debt: | |
| Of Fannie Mae: | | |
| | Senior floating | | $ | 0 | | | $ | 3,312 | | | $ | 416 | | | $ | — | | | $ | 3,728 | | | |
| Total of Fannie Mae | | 0 | | | 3,312 | | | 416 | | | — | | | 3,728 | | | |
| | Of Fannie Mae | | Of Fannie Mae | | $ | — | | | $ | 2,008 | | | $ | 373 | | | $ | — | | | $ | 2,381 | | |
| | Of consolidated trusts | Of consolidated trusts | | 0 | | | 24,503 | | | 83 | | | — | | | 24,586 | | | Of consolidated trusts | | — | | | 21,640 | | | 95 | | | — | | | 21,735 | | |
| Total long-term debt | Total long-term debt | | 0 | | | 27,815 | | | 499 | | | — | | | 28,314 | | | Total long-term debt | | — | | | 23,648 | | | 468 | | | — | | | 24,116 | | |
| Other liabilities: | Other liabilities: | | Other liabilities: | |
| Risk management derivatives: | Risk management derivatives: | | Risk management derivatives: | |
| Swaps | Swaps | | 0 | | | 881 | | | 0 | | | — | | | 881 | | | Swaps | | — | | | 1,165 | | | — | | | — | | | 1,165 | | |
| Swaptions | Swaptions | | 0 | | | 134 | | | 0 | | | — | | | 134 | | | Swaptions | | — | | | 23 | | | — | | | — | | | 23 | | |
| Netting adjustment | Netting adjustment | | — | | | — | | | — | | | (995) | | | (995) | | | Netting adjustment | | — | | | — | | | — | | | (1,173) | | | (1,173) | | |
| Mortgage commitment derivatives | Mortgage commitment derivatives | | 0 | | | 1,426 | | | 0 | | | — | | | 1,426 | | | Mortgage commitment derivatives | | — | | | 197 | | | — | | | — | | | 197 | | |
| Credit enhancement derivatives | Credit enhancement derivatives | | 0 | | | 0 | | | 49 | | | — | | | 49 | | | Credit enhancement derivatives | | — | | | — | | | 21 | | | — | | | 21 | | |
| Total other liabilities | Total other liabilities | | 0 | | | 2,441 | | | 49 | | | (995) | | | 1,495 | | | Total other liabilities | | — | | | 1,385 | | | 21 | | | (1,173) | | | 233 | | |
| Total liabilities at fair value | Total liabilities at fair value | | $ | 0 | | | $ | 30,256 | | | $ | 548 | | | $ | (995) | | | $ | 29,809 | | | Total liabilities at fair value | | $ | — | | | $ | 25,033 | | | $ | 489 | | | $ | (1,173) | | | $ | 24,349 | | |
(1)Derivative contracts are reported on a gross basis by level. The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting arrangements to settle with the same counterparty on a net basis, including cash collateral posted and received.
(2)Cash equivalents and restricted cash equivalents are comprisedcomposed of U.S. Treasuries that have a maturity at the date of acquisition of three months or less.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 110106 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Fair Value |
The following tables display a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3). The tables also display gains and losses due to changes in fair value, including both realized and unrealized gains and losses, recognized in our condensed consolidated statements of operations and comprehensive income for Level 3 assets and liabilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | For the Three Months Ended March 31, 2021 |
| | | | Total Gains (Losses) (Realized/Unrealized) | | | | | | | | | | | | | | | | Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of March 31, 2021(4)(5) | | Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of March 31, 2021(1) |
| | Balance, December 31, 2020 | | Included in Net Income | | Included in Total OCI Gain/(Loss)(1) | | Purchases(2) | | Sales(2) | | Issues(3) | | Settlements(3) | | Transfers out of Level 3 | | Transfers into Level 3 | | Balance, March 31, 2021 | |
| | (Dollars in millions) |
| Trading securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage-related: | | | | | | | | | | | | | | | | | | | | | | | | |
| Fannie Mae | | $ | 94 | | | $ | (1) | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (7) | | | $ | 23 | | | $ | 109 | | | $ | 2 | | | $ | 0 | |
| Other agency | | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | | | 0 | | | 0 | | | 0 | | | 0 | |
| Private-label and other mortgage securities | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total trading securities | | $ | 95 | | | $ | (1) | | (5)(6) | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (8) | | | $ | 23 | | | $ | 109 | | | $ | 2 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage-related: | | | | | | | | | | | | | | | | | | | | | | | | |
| Fannie Mae | | $ | 195 | | | $ | 0 | | | $ | (3) | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (3) | | | $ | 0 | | | $ | 0 | | | $ | 189 | | | $ | 0 | | | $ | (2) | |
| Alt-A and subprime private-label securities | | 2 | | | 0 | | | (1) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | | | 0 | |
| Mortgage revenue bonds | | 216 | | | 0 | | | (1) | | | 0 | | | 0 | | | 0 | | | (24) | | | 0 | | | 0 | | | 191 | | | 0 | | | 0 | |
| Other | | 235 | | | 3 | | | 3 | | | 0 | | | 0 | | | 0 | | | (11) | | | 0 | | | 0 | | | 230 | | | 0 | | | 2 | |
| Total available-for-sale securities | | $ | 648 | | | $ | 3 | | (6)(7) | $ | (2) | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (38) | | | $ | 0 | | | $ | 0 | | | $ | 611 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage loans | | $ | 861 | | | $ | 8 | | (5)(6) | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (47) | | | $ | (23) | | | $ | 21 | | | $ | 820 | | | $ | 9 | | | $ | 0 | |
| Net derivatives | | 333 | | | (132) | | (5) | 0 | | | 0 | | | 0 | | | 0 | | | (35) | | | 0 | | | 0 | | | 166 | | | (167) | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Long-term debt: | | | | | | | | | | | | | | | | | | | | | | | | |
| Of Fannie Mae: | | | | | | | | | | | | | | | | | | | | | | | | |
| Senior floating | | $ | (416) | | | $ | 34 | | (5) | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (382) | | | $ | 34 | | | $ | 0 | |
| Of consolidated trusts | | (83) | | | 1 | | (5)(6) | 0 | | | 0 | | | 0 | | | 0 | | | 4 | | | 20 | | | 0 | | | (58) | | | 0 | | | 0 | |
| Total long-term debt | | $ | (499) | | | $ | 35 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4 | | | $ | 20 | | | $ | 0 | | | $ | (440) | | | $ | 34 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | For the Three Months Ended March 31, 2022 |
| | | | Total Gains (Losses) (Realized/Unrealized) | | | | | | | | | | | | | | | | Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of March 31, 2022(4)(5) | | Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of March 31, 2022(1) |
| | Balance, December 31, 2021 | | Included in Net Income | | Included in Total OCI (Loss)(1) | | Purchases(2) | | Sales(2) | | Issues(3) | | Settlements(3) | | Transfers out of Level 3 | | Transfers into Level 3 | | Balance, March 31, 2022 | |
| | (Dollars in millions) |
| Trading securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage-related: | | | | | | | | | | | | | | | | | | | | | | | | |
| Fannie Mae | | $ | 57 | | | $ | (6) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (9) | | | $ | 5 | | | $ | 47 | | | $ | (4) | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total trading securities | | $ | 57 | | | $ | (6) | | (5)(6) | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (9) | | | $ | 5 | | | $ | 47 | | | $ | (4) | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage-related: | | | | | | | | | | | | | | | | | | | | | | | | |
| Fannie Mae | | $ | 431 | | | $ | 1 | | | $ | (4) | | | $ | — | | | $ | — | | | $ | — | | | $ | (10) | | | $ | — | | | $ | — | | | $ | 418 | | | $ | — | | | $ | (3) | |
| Alt-A and subprime private-label securities | | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | | (2) | | | — | | | — | | | — | | | — | |
| Mortgage revenue bonds | | 144 | | | — | | | — | | | — | | | — | | | — | | | (3) | | | — | | | — | | | 141 | | | — | | | — | |
| Other | | 176 | | | (8) | | | (1) | | | — | | | — | | | — | | | — | | | — | | | 1 | | | 168 | | | — | | | (1) | |
| Total available-for-sale securities | | $ | 753 | | | $ | (7) | | (6)(7) | $ | (5) | | | $ | — | | | $ | — | | | $ | — | | | $ | (13) | | | $ | (2) | | | $ | 1 | | | $ | 727 | | | $ | — | | | $ | (4) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage loans | | $ | 755 | | | $ | (25) | | (5)(6) | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (41) | | | $ | (44) | | | $ | 23 | | | $ | 668 | | | $ | (21) | | | $ | — | |
| Net derivatives | | 131 | | | (82) | | (5) | — | | | — | | | — | | | — | | | 8 | | | — | | | — | | | 57 | | | (74) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Long-term debt: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Of Fannie Mae | | $ | (373) | | | $ | 66 | | (5) | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (307) | | | $ | 66 | | | $ | — | |
| Of consolidated trusts | | (95) | | | 2 | | (5)(6) | — | | | — | | | — | | | (86) | | | 18 | | | 1 | | | (1) | | | (161) | | | 2 | | | — | |
| Total long-term debt | | $ | (468) | | | $ | 68 | | | $ | — | | | $ | — | | | $ | — | | | $ | (86) | | | $ | 18 | | | $ | 1 | | | $ | (1) | | | $ | (468) | | | $ | 68 | | | $ | — | |
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 111107 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Fair Value |
| | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | For the Three Months Ended March 31, 2020 | | For the Three Months Ended March 31, 2021 |
| | | Total Gains (Losses) (Realized/Unrealized) | | Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of March 31, 2020(4)(5) | | Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of March 31, 2020(1) | | | Total Gains (Losses) (Realized/Unrealized) | | Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of March 31, 2021(4)(5) | | Net Unrealized Gains (Losses) Included in OCI Related to Assets and Liabilities Still Held as of March 31, 2021(1) |
| | Balance, December 31, 2019 | | Included in Net Income | | Included in Total OCI Gain/(Loss)(1) | | Purchases(2) | | Sales(2) | | Issues(3) | | Settlements(3) | | Transfers out of Level 3 | | Transfers into
Level 3 | | Balance, March 31, 2020 | | | Balance, December 31, 2020 | | Included in Net Income | | Included in Total OCI (Loss)(1) | | Purchases(2) | | Sales(2) | | Issues(3) | | Settlements(3) | | Transfers out of Level 3 | | Transfers into
Level 3 | | Balance, March 31, 2021 | |
| | (Dollars in millions) | | (Dollars in millions) |
| Trading securities: | Trading securities: | | Trading securities: | |
| Mortgage-related: | Mortgage-related: | | Mortgage-related: | |
| Fannie Mae | Fannie Mae | | $ | 45 | | | $ | (9) | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (11) | | | $ | 43 | | | $ | 68 | | | $ | (10) | | | $ | 0 | | Fannie Mae | | $ | 94 | | | $ | (1) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (7) | | | $ | 23 | | | $ | 109 | | | $ | 2 | | | $ | — | |
| Other agency | Other agency | | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | | | 0 | | | 0 | | | 0 | | | 0 | | Other agency | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | — | | | — | | | — | | | — | |
| Private-label and other mortgage securities | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 94 | | | 94 | | | 0 | | | 0 | | |
| | Total trading securities | Total trading securities | | $ | 46 | | | $ | (9) | | (5)(6) | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (12) | | | $ | 137 | | | $ | 162 | | | $ | (10) | | | $ | 0 | | Total trading securities | | $ | 95 | | | $ | (1) | | (5)(6) | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (8) | | | $ | 23 | | | $ | 109 | | | $ | 2 | | | $ | — | |
| | Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
| Mortgage-related: | Mortgage-related: | | Mortgage-related: | |
| Fannie Mae | Fannie Mae | | $ | 171 | | | $ | 0 | | | $ | 4 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (1) | | | $ | 0 | | | $ | 14 | | | $ | 188 | | | $ | 0 | | | $ | 3 | | Fannie Mae | | $ | 195 | | | $ | — | | | $ | (3) | | | $ | — | | | $ | — | | | $ | — | | | $ | (3) | | | $ | — | | | $ | — | | | $ | 189 | | | $ | — | | | $ | (2) | |
| | Alt-A and subprime private-label securities | | Alt-A and subprime private-label securities | | 2 | | | — | | | (1) | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | — | |
| Mortgage revenue bonds | Mortgage revenue bonds | | 315 | | | (3) | | | 2 | | | 74 | | | (74) | | | 0 | | | (18) | | | 0 | | | 0 | | | 296 | | | 0 | | | 4 | | Mortgage revenue bonds | | 216 | | | — | | | (1) | | | — | | | — | | | — | | | (24) | | | — | | | — | | | 191 | | | — | | | — | |
| Other | Other | | 306 | | | (11) | | | (1) | | | 268 | | | (268) | | | 0 | | | (10) | | | 0 | | | 0 | | | 284 | | | 0 | | | (1) | | Other | | 235 | | | 3 | | | 3 | | | — | | | — | | | — | | | (11) | | | — | | | — | | | 230 | | | — | | | 2 | |
| Total available-for-sale securities | Total available-for-sale securities | | $ | 792 | | | $ | (14) | | (6)(7) | $ | 5 | | | $ | 342 | | | $ | (342) | | | $ | 0 | | | $ | (29) | | | $ | 0 | | | $ | 14 | | | $ | 768 | | | $ | 0 | | | $ | 6 | | Total available-for-sale securities | | $ | 648 | | | $ | 3 | | (6)(7) | $ | (2) | | | $ | — | | | $ | — | | | $ | — | | | $ | (38) | | | $ | — | | | $ | — | | | $ | 611 | | | $ | — | | | $ | — | |
| | | Mortgage loans | Mortgage loans | | $ | 688 | | | $ | (24) | | (5)(6) | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (29) | | | $ | (23) | | | $ | 26 | | | $ | 638 | | | $ | (26) | | | $ | 0 | | Mortgage loans | | $ | 861 | | | $ | 8 | | (5)(6) | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (47) | | | $ | (23) | | | $ | 21 | | | $ | 820 | | | $ | 9 | | | $ | — | |
| Net derivatives | Net derivatives | | 162 | | | 41 | | (5) | 0 | | | 0 | | | 0 | | | 0 | | | (4) | | | 18 | | | 0 | | | 217 | | | 44 | | | 0 | | Net derivatives | | 333 | | | (132) | | (5) | — | | | — | | | — | | | — | | | (35) | | | — | | | — | | | 166 | | | (167) | | | — | |
| | Long-term debt: | Long-term debt: | | Long-term debt: | |
| Of Fannie Mae: | | |
| Senior floating | | $ | (398) | | | $ | (34) | | (5) | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (432) | | | $ | (34) | | | $ | 0 | | |
| | Of Fannie Mae | | Of Fannie Mae | | $ | (416) | | | $ | 34 | | (5) | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (382) | | | $ | 34 | | | $ | — | |
| Of consolidated trusts | Of consolidated trusts | | (75) | | | 4 | | (5)(6) | 0 | | | 0 | | | 0 | | | 0 | | | 3 | | | 0 | | | (15) | | | (83) | | | 4 | | | 0 | | Of consolidated trusts | | (83) | | | 1 | | (5)(6) | — | | | — | | | — | | | — | | | 4 | | | 20 | | | — | | | (58) | | | — | | | — | |
| Total long-term debt | Total long-term debt | | $ | (473) | | | $ | (30) | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 3 | | | $ | 0 | | | $ | (15) | | | $ | (515) | | | $ | (30) | | | $ | 0 | | Total long-term debt | | $ | (499) | | | $ | 35 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 4 | | | $ | 20 | | | $ | — | | | $ | (440) | | | $ | 34 | | | $ | — | |
(1)Gains (losses) included in other“Other comprehensive income (loss)loss” are included in “Changes in unrealized gains (losses)losses on available-for-sale securities, net of reclassification adjustments and taxes” in our condensed consolidated statements of operations and comprehensive income.
(2)Purchases and sales include activity related to the consolidation and deconsolidation of assets of securitization trusts.
(3)Issues and settlements include activity related to the consolidation and deconsolidation of liabilities of securitization trusts.
(4)Amount represents temporary changes in fair value. Amortization, accretion and the impairment of credit losses are not considered unrealized and are not included in this amount.
(5)Gains (losses) are included in “Fair value gains, (losses), net” in our condensed consolidated statements of operations and comprehensive income.
(6)Gains (losses) are included in “Net interest income” in our condensed consolidated statements of operations and comprehensive income.
(7)Gains (losses) are included in “Investment gains (losses), net” in our condensed consolidated statements of operations and comprehensive income.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 112108 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Fair Value |
The following tables display valuation techniques and the range and the weighted average of significant unobservable inputs for our Level 3 assets and liabilities measured at fair value on a recurring basis, excluding instruments for which we have elected the fair value option. Changes in these unobservable inputs can result in significantly higher or lower fair value measurements of these assets and liabilities as of the reporting date.
| | | Fair Value Measurements as of March 31, 2021 | | Fair Value Measurements as of March 31, 2022 |
| | Fair Value | | Significant Valuation Techniques | | Significant Unobservable Inputs(1) | | Range(1) | | Weighted - Average(1)(2) | | Fair Value | | Significant Valuation Techniques | | Significant Unobservable Inputs(1) | | Range(1) | | Weighted - Average(1)(2) |
| | | (Dollars in millions) | | | (Dollars in millions) |
| Recurring fair value measurements: | Recurring fair value measurements: | | Recurring fair value measurements: | |
| Trading securities: | Trading securities: | | Trading securities: | |
| Mortgage-related securities: | Mortgage-related securities: | | Mortgage-related securities: | |
Agency(3) | Agency(3) | | $ | 109 | | | Various | | Agency(3) | | $ | 47 | | | Various | |
| | | Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
| Mortgage-related securities: | Mortgage-related securities: | | Mortgage-related securities: | |
Agency(3) | Agency(3) | | 93 | | | Consensus | | Agency(3) | | 380 | | | Consensus | |
| | 96 | | | Various | | | 38 | | | Various | |
| | Total agency | Total agency | | 189 | | | Total agency | | 418 | | |
| | Alt-A and subprime private-label securities | | 1 | | | Various | | |
| | | Mortgage revenue bonds | Mortgage revenue bonds | | 119 | | | Single Vendor | | Spreads (bps) | | 32.5 | | - | 188.5 | | 78.4 | Mortgage revenue bonds | | 92 | | | Single Vendor | |
| | 72 | | | Various | | | 49 | | | Various | |
| Total mortgage revenue bonds | Total mortgage revenue bonds | | 191 | | | Total mortgage revenue bonds | | 141 | | |
| | Other | Other | | 202 | | | Discounted Cash Flow | | Spreads (bps) | | 405.0 | | - | 406.0 | | 405.5 | Other | | 167 | | | Discounted Cash Flow | | Spreads (bps) | | 200.0 | | - | 515.0 | | 499.8 |
| | | | 28 | | | Various | | | 1 | | | Various | |
| Total other | Total other | | 230 | | | Total other | | 168 | | |
| Total available-for-sale securities | Total available-for-sale securities | | $ | 611 | | | Total available-for-sale securities | | $ | 727 | | |
| | Net derivatives | Net derivatives | | $ | 151 | | | Dealer Mark | | Net derivatives | | $ | 82 | | | Dealer Mark | |
| | 15 | | | Discounted Cash Flow | | | (25) | | | Discounted Cash Flow | |
| Total net derivatives | Total net derivatives | | $ | 166 | | | Total net derivatives | | $ | 57 | | |
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 113109 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Fair Value |
| | | Fair Value Measurements as of December 31, 2020 | | Fair Value Measurements as of December 31, 2021 |
| | Fair Value | | Significant Valuation Techniques | | Significant Unobservable Inputs(1) | | Range(1) | | Weighted - Average(1)(2) | | Fair Value | | Significant Valuation Techniques | | Significant Unobservable Inputs(1) | | Range(1) | | Weighted - Average(1)(2) |
| | (Dollars in millions) | | (Dollars in millions) |
| Recurring fair value measurements: | Recurring fair value measurements: | | Recurring fair value measurements: | |
| Trading securities: | Trading securities: | | Trading securities: | |
| Mortgage-related securities: | Mortgage-related securities: | | Mortgage-related securities: | |
Agency(3) | Agency(3) | | $ | 95 | | | Various | | Agency(3) | | $ | 57 | | | Various | |
| | Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
| Mortgage-related securities: | Mortgage-related securities: | | Mortgage-related securities: | |
Agency(3) | Agency(3) | | 97 | | | Consensus | | Agency(3) | | 379 | | | Consensus | |
| | 98 | | | Various | | | 52 | | | Various | |
| Total agency | Total agency | | 195 | | | Total agency | | 431 | | |
| | | Alt-A and subprime private-label securities | Alt-A and subprime private-label securities | | 2 | | | Various | | Alt-A and subprime private-label securities | | 2 | | | Various | |
| | Mortgage revenue bonds | Mortgage revenue bonds | | 144 | | | Single Vendor | | Spreads (bps) | | 32.0 | | - | 315.3 | | 93.4 | Mortgage revenue bonds | | 94 | | | Single Vendor | | Spreads (bps) | | 9.3 | | - | 49.4 | | 27.2 |
| | 72 | | | Various | | | 50 | | | Various | |
| Total mortgage revenue bonds | Total mortgage revenue bonds | | 216 | | | Total mortgage revenue bonds | | 144 | | |
| | Other | Other | | 206 | | | Discounted Cash Flow | | Spreads (bps) | | 425.0 | | - | 443.0 | | 434.2 | Other | | 175 | | | Discounted Cash Flow | | Spreads (bps) | | 409.0 | | - | 443.0 | | 422.0 |
| | | | 29 | | | Various | | | 1 | | | Various | |
| Total other | Total other | | 235 | | | Total other | | 176 | | |
| Total available-for-sale securities | Total available-for-sale securities | | $ | 648 | | | Total available-for-sale securities | | $ | 753 | | |
| | Net derivatives | Net derivatives | | $ | 203 | | | Dealer Mark | | Net derivatives | | $ | 152 | | | Dealer Mark | |
| | 130 | | | Discounted Cash Flow | | | (21) | | | Discounted Cash Flow | |
| Total net derivatives | Total net derivatives | | $ | 333 | | | Total net derivatives | | $ | 131 | | |
(1)Valuation techniques for which no unobservable inputs are disclosed generally reflect the use of third-party pricing services or dealers, and the range of unobservable inputs applied by these sources is not readily available or cannot be reasonably estimated. Where we have disclosed unobservable inputs for consensus and single vendor techniques, those inputs are based on our validations performed at the security level using discounted cash flows.
(2)Unobservable inputs were weighted by the relative fair value of the instruments.
(3)Includes Fannie Mae and Freddie Mac securities.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 114110 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Fair Value |
In our condensed consolidated balance sheets, certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when we evaluate loans for impairment). We had 0no Level 1 assets or liabilities held as of March 31, 2021 or December 31, 2020 that were measured at fair value on a nonrecurring basis.basis as of March 31, 2022 or December 31, 2021. We held $672$308 million and $25$38 million in Level 2 assets as of March 31, 20212022 and December 31, 2020,2021, respectively, comprisedcomposed of mortgage loans held for sale that were impaired. We had 0no Level 2 liabilities that were measured at fair value on a nonrecurring basis as of March 31, 20212022 or December 31, 2020.2021.
The following table displays valuation techniques for our Level 3 assets measured at fair value on a nonrecurring basis.
| | | Fair Value Measurements as of | | Fair Value Measurements as of |
| | Valuation Techniques | | March 31, 2021 | | December 31, 2020 | | Valuation Techniques | | March 31, 2022 | | December 31, 2021 |
| | (Dollars in millions) | | | | (Dollars in millions) |
| Nonrecurring fair value measurements: | Nonrecurring fair value measurements: | | Nonrecurring fair value measurements: | |
Mortgage loans:(1) | | Mortgage loans:(1) | |
| Mortgage loans held for sale, at lower of cost or fair value | Mortgage loans held for sale, at lower of cost or fair value | | Consensus | | $ | 212 | | | $ | 754 | | Mortgage loans held for sale, at lower of cost or fair value | | Consensus | | $ | 499 | | | $ | 201 | |
| | Single Vendor | | 394 | | | 333 | | | Single Vendor | | 1,514 | | | 1,383 | |
| | Total mortgage loans held for sale, at lower of cost or fair value | Total mortgage loans held for sale, at lower of cost or fair value | | | | 606 | | | 1,087 | | Total mortgage loans held for sale, at lower of cost or fair value | | | | 2,013 | | | 1,584 | |
| | Single-family mortgage loans held for investment, at amortized cost | Single-family mortgage loans held for investment, at amortized cost | | Internal Model | | 614 | | | 979 | | Single-family mortgage loans held for investment, at amortized cost | | Internal Model | | 1,075 | | | 867 | |
| | | Multifamily mortgage loans held for investment, at amortized cost | Multifamily mortgage loans held for investment, at amortized cost | | Appraisals | | 166 | | | 225 | | Multifamily mortgage loans held for investment, at amortized cost | | Appraisal | | 19 | | | 37 | |
| | | Internal Model | | 122 | | | 125 | | | Broker Price Opinion | | 59 | | | 118 | |
| | Various | | 75 | | | 40 | | | Internal Model | | 28 | | | 23 | |
| Total multifamily mortgage loans held for investment, at amortized cost | Total multifamily mortgage loans held for investment, at amortized cost | | | | 363 | | | 390 | | Total multifamily mortgage loans held for investment, at amortized cost | | | | 106 | | | 178 | |
| | Acquired property, net: | Acquired property, net: | | Acquired property, net: | |
| Single-family | Single-family | | Accepted Offers | | 16 | | | 35 | | Single-family | | Accepted Offer | | 16 | | | 13 | |
| | Appraisals | | 63 | | | 89 | | | Appraisal | | 84 | | | 73 | |
| | Internal Model | | 26 | | | 41 | | | Internal Model | | 39 | | | 75 | |
| | Walk Forwards | | 56 | | | 85 | | | Walk Forward | | 70 | | | 37 | |
| | Various | | 10 | | | 11 | | | Various | | 11 | | | 11 | |
| Total single-family | Total single-family | | | | 171 | | | 261 | | Total single-family | | | | 220 | | | 209 | |
| | Multifamily | Multifamily | | Various | | 5 | | | 25 | | Multifamily | | Various | | — | | | 34 | |
| | Total nonrecurring assets at fair value | Total nonrecurring assets at fair value | | | | $ | 1,759 | | | $ | 2,742 | | Total nonrecurring assets at fair value | | | | $ | 3,414 | | | $ | 2,872 | |
(1)When we measure impairment, including recoveries, based on the fair value of the loan or the underlying collateral and impairment is recorded on any component of the mortgage loan, including accrued interest receivable and amounts due from the borrower for advances of taxes and insurance, we present the entire fair value measurement amount with the corresponding mortgage loan.
We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. See “Note 15, Fair Value” in our 20202021 Form 10-K for information on the valuation control processes and the valuation techniques we use for fair value measurement and disclosure as well as our basis for classifying these measurements as Level 1, Level 2 or Level 3 of the valuation hierarchy in more specific situations. We made no material changes to the valuation control processes or the valuation techniques for the three months ended March 31, 2021.2022.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 115111 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Fair Value |
Fair Value of Financial Instruments
The following table displays the carrying value and estimated fair value of our financial instruments. The fair value of financial instruments we disclose includes commitments to purchase multifamily and single-family mortgage loans that we do not record in our condensed consolidated balance sheets. The fair values of these commitments are included as “Mortgage loans held for investment, net of allowance for loan losses.” The disclosure excludes all non-financial instruments; therefore, the fair value of our financial assets and liabilities does not represent the underlying fair value of our total consolidated assets and liabilities.
| | | As of March 31, 2021 | | As of March 31, 2022 |
| | Carrying Value | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs
(Level 3) | | | Netting Adjustment | | Estimated Fair Value | | Carrying Value | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs
(Level 3) | | | Netting Adjustment | | Estimated Fair Value |
| | (Dollars in millions) | | (Dollars in millions) |
| Financial assets: | Financial assets: | | | | | | | | | | Financial assets: | | | | | | | | | |
| Cash and cash equivalents, including restricted cash and cash equivalents | Cash and cash equivalents, including restricted cash and cash equivalents | | $ | 114,341 | | | | $ | 102,841 | | | | $ | 11,500 | | | | $ | 0 | | | | $ | — | | | $ | 114,341 | | Cash and cash equivalents, including restricted cash and cash equivalents | | $ | 88,981 | | | | $ | 51,656 | | | | $ | 37,325 | | | | $ | — | | | | $ | — | | | $ | 88,981 | |
| Federal funds sold and securities purchased under agreements to resell or similar arrangements | | 54,937 | | | | 0 | | | | 54,937 | | | | 0 | | | | — | | | 54,937 | | |
| Securities purchased under agreements to resell or similar arrangements | | Securities purchased under agreements to resell or similar arrangements | | 17,907 | | | | — | | | | 17,907 | | | | — | | | | — | | | 17,907 | |
| Trading securities | Trading securities | | 111,256 | | | | 105,601 | | | | 5,546 | | | | 109 | | | | — | | | 111,256 | | Trading securities | | 84,629 | | | | 79,987 | | | | 4,595 | | | | 47 | | | | — | | | 84,629 | |
| Available-for-sale securities | Available-for-sale securities | | 1,502 | | | | 0 | | | | 891 | | | | 611 | | | | — | | | 1,502 | | Available-for-sale securities | | 806 | | | | — | | | | 79 | | | | 727 | | | | — | | | 806 | |
| Mortgage loans held for sale | Mortgage loans held for sale | | 7,824 | | | | 0 | | | | 3,511 | | | | 5,122 | | | | — | | | 8,633 | | Mortgage loans held for sale | | 5,920 | | | | — | | | | 1,312 | | | | 4,996 | | | | — | | | 6,308 | |
| Mortgage loans held for investment, net of allowance for loan losses | Mortgage loans held for investment, net of allowance for loan losses | | 3,732,056 | | | | 0 | | | | 3,549,337 | | | | 245,916 | | | | — | | | 3,795,253 | | Mortgage loans held for investment, net of allowance for loan losses | | 4,044,618 | | | | — | | | | 3,672,291 | | | | 192,844 | | | | — | | | 3,865,135 | |
| Advances to lenders | Advances to lenders | | 10,572 | | | | 0 | | | | 10,571 | | | | 1 | | | | — | | | 10,572 | | Advances to lenders | | 5,977 | | | | — | | | | 5,977 | | | | — | | | | — | | | 5,977 | |
| Derivative assets at fair value | Derivative assets at fair value | | 2,672 | | | | 0 | | | | 3,115 | | | | 212 | | | | (655) | | | 2,672 | | Derivative assets at fair value | | 1,824 | | | | — | | | | 1,848 | | | | 85 | | | | (109) | | | 1,824 | |
| Guaranty assets and buy-ups | Guaranty assets and buy-ups | | 109 | | | | 0 | | | | 0 | | | | 242 | | | | — | | | 242 | | Guaranty assets and buy-ups | | 90 | | | | — | | | | — | | | | 192 | | | | — | | | 192 | |
| Total financial assets | Total financial assets | | $ | 4,035,269 | | | | $ | 208,442 | | | | $ | 3,639,408 | | | | $ | 252,213 | | | | $ | (655) | | | $ | 4,099,408 | | Total financial assets | | $ | 4,250,752 | | | | $ | 131,643 | | | | $ | 3,741,334 | | | | $ | 198,891 | | | | $ | (109) | | | $ | 4,071,759 | |
| | Financial liabilities: | Financial liabilities: | | | | | | | | | | Financial liabilities: | | | | | | | | | |
| | Short-term debt: | Short-term debt: | | | | | | | | | | Short-term debt: | | | | | | | | | |
| Of Fannie Mae | Of Fannie Mae | | $ | 2,857 | | | | $ | 0 | | | | $ | 2,857 | | | | $ | 0 | | | | $ | — | | | $ | 2,857 | | Of Fannie Mae | | $ | 4,045 | | | | $ | — | | | | $ | 4,044 | | | | $ | — | | | | $ | — | | | $ | 4,044 | |
| | Long-term debt: | Long-term debt: | | | | | | | | | | Long-term debt: | | | | | | | | | |
| Of Fannie Mae | Of Fannie Mae | | 270,585 | | | | 0 | | | | 279,208 | | | | 828 | | | | — | | | 280,036 | | Of Fannie Mae | | 176,124 | | | | — | | | | 178,526 | | | | 700 | | | | — | | | 179,226 | |
| Of consolidated trusts | Of consolidated trusts | | 3,740,538 | | | | 0 | | | | 3,777,011 | | | | 30,990 | | | | — | | | 3,808,001 | | Of consolidated trusts | | 4,028,628 | | | | — | | | | 3,795,577 | | | | 33,002 | | | | — | | | 3,828,579 | |
| Derivative liabilities at fair value | Derivative liabilities at fair value | | 2,106 | | | | 0 | | | | 3,692 | | | | 46 | | | | (1,632) | | | 2,106 | | Derivative liabilities at fair value | | 1,204 | | | | — | | | | 4,057 | | | | 28 | | | | (2,881) | | | 1,204 | |
| Guaranty obligations | Guaranty obligations | | 120 | | | | 0 | | | | 0 | | | | 75 | | | | — | | | 75 | | Guaranty obligations | | 99 | | | | — | | | | — | | | | 96 | | | | — | | | 96 | |
| Total financial liabilities | Total financial liabilities | | $ | 4,016,206 | | | | $ | 0 | | | | $ | 4,062,768 | | | | $ | 31,939 | | | | $ | (1,632) | | | $ | 4,093,075 | | Total financial liabilities | | $ | 4,210,100 | | | | $ | — | | | | $ | 3,982,204 | | | | $ | 33,826 | | | | $ | (2,881) | | | $ | 4,013,149 | |
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 116112 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Fair Value |
| | | As of December 31, 2020 | | As of December 31, 2021 |
| | Carrying Value | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs
(Level 3) | | Netting Adjustment | | Estimated Fair Value | | Carrying Value | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs
(Level 3) | | Netting Adjustment | | Estimated Fair Value |
| | (Dollars in millions) | | (Dollars in millions) |
| Financial assets: | Financial assets: | | | | | | | | | | Financial assets: | | | | | | | | | |
| Cash and cash equivalents and restricted cash | | $ | 115,623 | | | | $ | 97,179 | | | | $ | 18,444 | | | | $ | 0 | | | | $ | — | | | $ | 115,623 | | |
| Federal funds sold and securities purchased under agreements to resell or similar arrangements | | 28,200 | | | | 0 | | | | 28,200 | | | | 0 | | | | — | | | 28,200 | | |
| Cash and cash equivalents, including restricted cash and cash equivalents | | Cash and cash equivalents, including restricted cash and cash equivalents | | $ | 108,631 | | | | $ | 64,531 | | | | $ | 44,100 | | | | $ | — | | | | $ | — | | | $ | 108,631 | |
| Securities purchased under agreements to resell or similar arrangements | | Securities purchased under agreements to resell or similar arrangements | | 20,743 | | | | — | | | | 20,743 | | | | — | | | | — | | | 20,743 | |
| Trading securities | Trading securities | | 136,542 | | | | 130,456 | | | | 5,991 | | | | 95 | | | | — | | | 136,542 | | Trading securities | | 88,206 | | | | 83,581 | | | | 4,568 | | | | 57 | | | | — | | | 88,206 | |
| Available-for-sale securities | Available-for-sale securities | | 1,697 | | | | 0 | | | | 1,049 | | | | 648 | | | | — | | | 1,697 | | Available-for-sale securities | | 837 | | | | — | | | | 84 | | | | 753 | | | | — | | | 837 | |
| Mortgage loans held for sale | Mortgage loans held for sale | | 5,197 | | | | 0 | | | | 116 | | | | 5,502 | | | | — | | | 5,618 | | Mortgage loans held for sale | | 5,134 | | | | — | | | | 178 | | | | 5,307 | | | | — | | | 5,485 | |
| Mortgage loans held for investment, net of allowance for loan losses | Mortgage loans held for investment, net of allowance for loan losses | | 3,648,695 | | | | 0 | | | | 3,512,672 | | | | 255,556 | | | | — | | | 3,768,228 | | Mortgage loans held for investment, net of allowance for loan losses | | 3,963,108 | | | | — | | | | 3,796,917 | | | | 209,090 | | | | — | | | 4,006,007 | |
| Advances to lenders | Advances to lenders | | 10,449 | | | | 0 | | | | 10,448 | | | | 1 | | | | — | | | 10,449 | | Advances to lenders | | 8,414 | | | | — | | | | 8,413 | | | | 1 | | | | — | | | 8,414 | |
| Derivative assets at fair value | Derivative assets at fair value | | 1,225 | | | | 0 | | | | 1,748 | | | | 382 | | | | (905) | | | 1,225 | | Derivative assets at fair value | | 171 | | | | — | | | | 256 | | | | 152 | | | | (237) | | | 171 | |
| Guaranty assets and buy-ups | Guaranty assets and buy-ups | | 115 | | | | 0 | | | | 0 | | | | 258 | | | | — | | | 258 | | Guaranty assets and buy-ups | | 92 | | | | — | | | | — | | | | 207 | | | | — | | | 207 | |
| Total financial assets | Total financial assets | | $ | 3,947,743 | | | | $ | 227,635 | | | | $ | 3,578,668 | | | | $ | 262,442 | | | | $ | (905) | | | $ | 4,067,840 | | Total financial assets | | $ | 4,195,336 | | | | $ | 148,112 | | | | $ | 3,875,259 | | | | $ | 215,567 | | | | $ | (237) | | | $ | 4,238,701 | |
| | Financial liabilities: | Financial liabilities: | | | | | | | | | | Financial liabilities: | | | | | | | | | |
| | Short-term debt: | Short-term debt: | | | | | | | | | | Short-term debt: | | | | | | | | | |
| Of Fannie Mae | Of Fannie Mae | | $ | 12,173 | | | | $ | 0 | | | | $ | 12,177 | | | | $ | 0 | | | | $ | — | | | $ | 12,177 | | Of Fannie Mae | | $ | 2,795 | | | | $ | — | | | | $ | 2,795 | | | | $ | — | | | | $ | — | | | $ | 2,795 | |
| | Long-term debt: | Long-term debt: | | | | | | | | | | Long-term debt: | | | | | | | | | |
| Of Fannie Mae | Of Fannie Mae | | 277,399 | | | | 0 | | | | 288,414 | | | | 878 | | | | — | | | 289,292 | | Of Fannie Mae | | 198,097 | | | | — | | | | 205,142 | | | | 799 | | | | — | | | 205,941 | |
| Of consolidated trusts | Of consolidated trusts | | 3,646,164 | | | | 0 | | | | 3,756,673 | | | | 31,584 | | | | — | | | 3,788,257 | | Of consolidated trusts | | 3,957,299 | | | | — | | | | 3,951,537 | | | | 32,644 | | | | — | | | 3,984,181 | |
| Derivative liabilities at fair value | Derivative liabilities at fair value | | 1,495 | | | | 0 | | | | 2,441 | | | | 49 | | | | (995) | | | 1,495 | | Derivative liabilities at fair value | | 233 | | | | — | | | | 1,385 | | | | 21 | | | | (1,173) | | | 233 | |
| Guaranty obligations | Guaranty obligations | | 127 | | | | 0 | | | | 0 | | | | 82 | | | | — | | | 82 | | Guaranty obligations | | 101 | | | | — | | | | — | | | | 101 | | | | — | | | 101 | |
| Total financial liabilities | Total financial liabilities | | $ | 3,937,358 | | | | $ | 0 | | | | $ | 4,059,705 | | | | $ | 32,593 | | | | $ | (995) | | | $ | 4,091,303 | | Total financial liabilities | | $ | 4,158,525 | | | | $ | — | | | | $ | 4,160,859 | | | | $ | 33,565 | | | | $ | (1,173) | | | $ | 4,193,251 | |
For a detailed description and classification of our financial instruments, see “Note 15, Fair Value” in our 20202021 Form 10-K.
Fair Value Option
We elected the fair value option for loans and debt that contain embedded derivatives that would otherwise require bifurcation. Additionally, we elected the fair value option for our credit risk-sharing securities accounted for as debt of Fannie Mae issued under our CAS series prior to January 1, 2016. Under the fair value option, we elected to carry these instruments at fair value instead of bifurcating the embedded derivative from such instruments.
Interest income for the mortgage loans is recorded in “Interest income—income: Mortgage loans” and interest expense for the debt instruments is recorded in “Interest expense—expense: Long-term debt” in our condensed consolidated statements of operations and comprehensive income.
| | | | | | | | |
Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 117113 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Fair Value |
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 | | As of |
| | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | Loans(1) | | Long-Term Debt of Fannie Mae | | Long-Term Debt of Consolidated Trusts | | Loans(1) | | Long-Term Debt of Fannie Mae | | Long-Term Debt of Consolidated Trusts | | Loans(1) | | Long-Term Debt of Fannie Mae | | Long-Term Debt of Consolidated Trusts | | Loans(1) | | Long-Term Debt of Fannie Mae | | Long-Term Debt of Consolidated Trusts |
| | (Dollars in millions) | | (Dollars in millions) |
| Fair value | Fair value | | $ | 6,048 | | | $ | 3,336 | | | $ | 23,601 | | | $ | 6,490 | | | $ | 3,728 | | | $ | 24,586 | | | Fair value | | $ | 4,492 | | | $ | 2,091 | | | $ | 20,117 | | | $ | 4,964 | | | $ | 2,381 | | | $ | 21,735 | | |
| Unpaid principal balance | Unpaid principal balance | | 5,618 | | | 3,158 | | | 20,828 | | | 6,046 | | | 3,518 | | | 21,408 | | | Unpaid principal balance | | 4,340 | | | 1,988 | | | 18,758 | | | 4,601 | | | 2,197 | | | 19,314 | | |
(1)Includes nonaccrual loans with a fair value of $144$63 million and $139$86 million as of March 31, 20212022 and December 31, 2020,2021, respectively. The difference between unpaid principal balance and the fair value of these nonaccrual loans as of March 31, 20212022 and December 31, 20202021 was $9$1 million and $8$3 million, respectively. Includes loans that are 90 days or more past due with a fair value of $228$95 million and $257$125 million as of March 31, 20212022 and December 31, 2020,2021, respectively. The difference between unpaid principal balance and the fair value of these 90 or more days past due loans as of March 31, 20212022 and December 31, 20202021 was $10$1 million and $14$6 million, respectively.
Changes in Fair Value under the Fair Value Option Election
We recorded gainslosses of $25 million and $151$191 million for the three months ended March 31, 20212022 and gains of $25 million for the three months ended March 31, 2020, respectively,2021 from changes in the fair value of loans recorded at fair value in “Fair value gains, (losses), net” in our condensed consolidated statements of operations and comprehensive income.
We recorded gains of $373 million$1.1 billion and $262$373 million for the three months ended March 31, 20212022 and March 31, 2020,2021, respectively, from changes in the fair value of long-term debt recorded at fair value in “Fair value gains, (losses), net” in our condensed consolidated statements of operations and comprehensive income.
13. Commitments and Contingencies
We are party to various types of legal actions and proceedings, including actions brought on behalf of various classes of claimants. We also are subject to regulatory examinations, inquiries and investigations, and other information gathering requests. In some of the matters, indeterminate amounts are sought. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. This variability in pleadings, together with our and our counsel’s actual experience in litigating or settling claims, leads us to conclude that the monetary relief that may be sought by plaintiffs bears little relevance to the merits or disposition value of claims.
We have substantial and valid defenses to the claims in the proceedings described below and intend to defend these matters vigorously. However, legal actions and proceedings of all types are subject to many uncertain factors that generally cannot be predicted with assurance. Accordingly, the outcome of any given matter and the amount or range of potential loss at particular points in time is frequently difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how courts will apply the law. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel may view the evidence and applicable law.
On a quarterly basis, we review relevant information about all pending legal actions and proceedings for the purpose of evaluating and revising our contingencies, accruals and disclosures. We establish an accrual only for matters when a loss is probable and we can reasonably estimate the amount of such loss. We are often unable to estimate the possible losses or ranges of losses, particularly for proceedings that are in their early stages of development, where plaintiffs seek indeterminate or unspecified damages, where there may be novel or unsettled legal questions relevant to the proceedings, or where settlement negotiations have not occurred or progressed. Given the uncertainties involved in any action or proceeding, regardless of whether we have established an accrual, the ultimate resolution of certain of these matters may be material to our operating results for a particular period, depending on, among other factors, the size of the loss or liability imposed and the level of our net income or loss for that period.
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| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 114 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Commitments and Contingencies |
In addition to the matters specifically described below, we are involved in a number of legal and regulatory proceedings that arise in the ordinary course of business that we do not expect will have a material impact on our business or financial condition. We have also advanced fees and expenses of certain current and former officers and directors in connection with various legal proceedings pursuant to our bylaws and indemnification agreements.
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Fannie Mae (In conservatorship) First Quarter 2021 Form 10-Q | 118 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Commitments and Contingencies |
Senior Preferred Stock Purchase Agreements Litigation
A consolidated putative class action (“In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations”) and twoa non-class action lawsuits,lawsuit, Arrowood Indemnity Company v. Fannie Mae andFairholme Funds v. FHFA, filed by Fannie Mae and Freddie Mac shareholders against us, FHFA as our conservator, and Freddie Mac are pending in the U.S. District Court for the District of Columbia.Columbia, with trials scheduled to begin on July 11, 2022. The lawsuits challenge the August 2012 amendment to each company’s senior preferred stock purchase agreement with Treasury.
Plaintiffs in these lawsuits filed amended complaints in all three lawsuits on November 1, 2017 alleging that the net worth sweep dividend provisions of the senior preferred stock that were implemented pursuant to the August 2012 amendments nullified certain of the shareholders’ rights, particularly the right to receive dividends. Plaintiffs seek unspecified damages, equitable and injunctive relief, and costs and expenses, including attorneys’ fees. Plaintiffs in the class action seek to represent several classes of preferred and/or common shareholdersa class of Fannie Mae and/orpreferred shareholders and classes of Freddie Mac who held stock as of the public announcement of the August 2012 amendments.common and preferred shareholders. On September 28, 2018, the court dismissed all of the plaintiffs’ claims except for their claims for breach of an implied covenant of good faith and fair dealing. On March 21, 2022, we, FHFA and Freddie Mac filed a motion for summary judgment on plaintiffs’ remaining claim and plaintiffs filed a motion for partial summary judgment.
Given the stage of these lawsuits, the substantial and novel legal questions that remain, and our substantial defenses, we are currently unable to estimate the reasonably possible loss or range of loss arising from this litigation.
14. Regulatory Capital Requirements
FHFA published a final rule establishing a new enterprise regulatory capital framework for the GSEs in December 2020. FHFA published a final rule amending the enterprise regulatory capital framework in March 2022. We refer to the rule’s requirements, as amended, as the “enterprise regulatory capital framework.” The enterprise regulatory capital framework establishes new supplemental leverage and risk-based capital requirements for the GSEs. Under the leverage capital requirements, we must maintain a tier 1 capital ratio of 2.5% of adjusted total assets. Under the risk-based capital requirements, we must maintain minimum common equity tier 1 capital, tier 1 capital, and adjusted total capital ratios of 4.5%, 6%, and 8%, respectively, of risk-weighted assets. The enterprise regulatory capital framework requires substantially higher levels of capital than the previously applicable statutory minimum capital requirement.
Although the enterprise regulatory capital framework went into effect in February 2021, we are not required to hold capital according to the framework’s requirements until the date of termination of our conservatorship, or such later date as may be ordered by FHFA.
The enterprise regulatory capital framework provides a granular assessment of credit risk specific to different mortgage loan categories, as well as components for market risk and operational risk. The enterprise regulatory capital framework includes the following requirements:
•Supplemental capital requirements relating to the amount and form of the capital we hold, based largely on definitions of capital used in U.S. banking regulators’ regulatory capital framework. The enterprise regulatory capital framework specifies complementary leverage and risk-based requirements, which together determine the requirements for each tier of capital;
•A requirement that we hold prescribed capital buffers that can be drawn down in periods of financial stress and then rebuilt over time as economic conditions improve. If we fall below the prescribed buffer amounts, we must restrict capital distributions such as stock repurchases and dividends, as well as discretionary bonus payments to executives, until the buffer amounts are restored. The prescribed capital buffers represent the amount of capital we are required to hold above the minimum leverage and risk-based capital requirements.
◦The prescribed leverage buffer amount (“PLBA”) represents the amount of tier 1 capital we are required to hold above the minimum tier 1 leverage capital requirement;
◦The risk-based capital buffers consist of three separate components: a stability capital buffer, a stress capital buffer, and a countercyclical capital buffer. Taken together, these risk-based buffers comprise the prescribed capital conservation buffer amount (“PCCBA”). The PCCBA must be comprised entirely of common equity tier 1 capital; and
•Specific minimum percentages, or “floors,” on the risk-weights applicable to single-family and multifamily exposures, as well as retained portions of credit risk transfer transactions.
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Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 119115 |
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| Notes to Condensed Consolidated Financial Statements | Regulatory Capital Requirements |
The table below sets forth information about our capital requirements under the standardized approach of the enterprise regulatory capital framework. Available capital for purposes of the enterprise regulatory capital framework excludes the stated value of the senior preferred stock ($120.8 billion) and other amounts specified in footnote 2 to the table. Because of these exclusions, we had a deficit in available capital as of March 31, 2022, even though we had positive net worth under GAAP of $51.8 billion as of March 31, 2022.
As of March 31, 2022, we had a $272 billion shortfall of our available capital (deficit) as shown in the table below to the adjusted total capital requirement (including buffers) of $190 billion under the standardized approach of the rule. As of March 31, 2022, our risk-based adjusted total capital requirement (including buffers) represented the amount of capital needed to be fully capitalized under the standardized approach to the rule.
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Capital Metrics under the Enterprise Regulatory Capital Framework as of March 31, 2022(1) |
| (Dollars in billions) |
| Adjusted total assets | $ | 4,529 | | | | | | | | | | | |
| Risk-weighted assets | 1,391 | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Amounts | | Ratios |
| | Available Capital (Deficit)(2) | | Minimum Capital Requirement | | Total Capital Requirement (including Buffers)(4) | | Available Capital (Deficit) Ratio(3) | | Minimum Capital Ratio Requirement | | Total Capital Requirement Ratio (including Buffers)(3) |
| Risk-based capital: | | | | | | | | | | | |
| Total capital(5) | $ | (63) | | | $ | 111 | | | $ | 111 | | | (4.5) | % | | 8.0 | % | | 8.0 | % |
| Common equity tier 1 capital | (101) | | | 63 | | 142 | | | (7.3) | | | 4.5 | | | 10.2 | |
| Tier 1 capital | (82) | | | 83 | | 162 | | | (5.9) | | | 6.0 | | | 11.6 | |
| Adjusted total capital | (82) | | | 111 | | 190 | | | (5.9) | | | 8.0 | | | 13.6 | |
| Leverage capital: | | | | | | | | | | | |
| Core capital(6) | (69) | | | 113 | | | 113 | | | (1.5) | | | 2.5 | | | 2.5 | |
| Tier 1 capital | (82) | | | 113 | | | 136 | | | (1.8) | | | 2.5 | | | 3.0 | |
(1)Ratios are calculated as a percentage of risk-weighted assets for risk-based capital metrics and as a percentage of adjusted total assets for leverage capital metrics.
(2)Available capital (deficit) for all line items excludes the stated value of the senior preferred stock ($120.8 billion). Available capital (deficit) for all line items except total capital and core capital also deducts a portion of deferred tax assets. Deferred tax assets arising from temporary differences between GAAP and tax requirements are deducted from capital to the extent they exceed 10% of common equity. As of March 31, 2022, this resulted in the full deduction of deferred tax assets ($13.1 billion) from our available capital (deficit). Available capital (deficit) for common equity tier 1 capital also excludes the value of the non-cumulative perpetual preferred stock ($19.1 billion).
(3)Available capital (deficit) as a percentage of risk-weighted assets. Ratios are negative because we had a deficit in available capital for each tier of capital.
(4)The applicable buffer for common equity tier 1 capital, tier 1 capital, and adjusted total capital is the PCCBA, comprised of a stress capital buffer, a stability capital buffer, and a countercyclical capital buffer. The applicable buffer for tier 1 capital (leverage based) is the PLBA. The stress capital buffer and countercyclical capital buffer are each calculated by multiplying prescribed factors by adjusted total assets as of the last day of the previous calendar quarter. The 2022 stability capital buffer is calculated by multiplying a factor determined based on our share of mortgage debt outstanding by adjusted total assets as of December 31, 2020. The prescribed leverage buffer for 2022 is set at 50% of the 2022 stability buffer. Going forward the stability buffer and the prescribed leverage buffer will be updated with an effective date that depends on whether the stability capital buffer increases or decreases relative to the previously calculated value.
(5)The sum of (a) core capital (see definition in footnote 6 below); and (b) a general allowance for foreclosure losses, which (i) shall include an allowance for portfolio mortgage losses, an allowance for non-reimbursable foreclosure costs on government claims, and an allowance for liabilities reflected on the balance sheet for estimated foreclosure losses on mortgage-backed securities; and (ii) shall not include any reserves made or held against specific assets; and (c) any other amounts from sources of funds available to absorb losses that the Director of FHFA by regulation determines are appropriate to include in determining total capital.
(6)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 or (b) senior preferred stock.
As a result of our capital shortfall, our maximum payout ratio under the enterprise regulatory capital framework as of March 31, 2022 was 0%. While it is not applicable until we are required to comply with the capital requirements under the enterprise regulatory capital framework, our maximum payout ratio represents the percentage of eligible retained income that we are permitted to pay out in the form of distributions or discretionary bonus payments under the enterprise regulatory capital framework. The maximum payout ratio for a given quarter is the lowest of the payout ratios determined by our capital conservation buffer and our leverage buffer.
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| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 116 |
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| Quantitative and Qualitative Disclosures about Market Risk |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Information about market risk is set forth in “MD&A—Risk Management—Market Risk Management, including Interest-Rate Risk Management.”
Item 4. Controls and Procedures
Overview
We are required under applicable laws and regulations to maintain controls and procedures, which include disclosure controls and procedures as well as internal control over financial reporting, as further described below.
Evaluation of Disclosure Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures refer to controls and other procedures designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the 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 in effect as of March 31, 2021,2022, 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 March 31, 20212022 or as of the date of filing this report.
Our disclosure controls and procedures were not effective as of March 31, 20212022 or as of the date of filing this report because they did not adequately ensure the accumulation and communication to management of information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws. As a result, we were not able to rely upon the disclosure controls and procedures that were in place as of March 31, 20212022 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, we do not expect to remediate this material weakness while we are under conservatorship.
DescriptionSenior Preferred Stock Purchase Agreements Litigation
A consolidated class action (“In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations”) and a non-class action lawsuit, Fairholme Funds v. FHFA, filed by Fannie Mae and Freddie Mac shareholders against us, FHFA as our conservator, and Freddie Mac are pending in the U.S. District Court for the District of Material WeaknessColumbia, with trials scheduled to begin on July 11, 2022. The lawsuits challenge the August 2012 amendment to each company’s senior preferred stock purchase agreement with Treasury.
The Public Company Accounting Oversight Board’s Auditing Standard 2201 defines a material weakness as a deficiency, or a combination of deficiencies,Plaintiffs in internal control over financial reporting, suchthese lawsuits filed amended complaints on November 1, 2017 alleging that there is a reasonable possibility that a material misstatementthe net worth sweep dividend provisions of the company’s annualsenior preferred stock that were implemented pursuant to the August 2012 amendments nullified certain of the shareholders’ rights, particularly the right to receive dividends. Plaintiffs seek damages, equitable and injunctive relief, and costs and expenses, including attorneys’ fees. Plaintiffs in the class action represent a class of Fannie Mae preferred shareholders and classes of Freddie Mac common and preferred shareholders. On September 28, 2018, the court dismissed all of the plaintiffs’ claims except for their claims for breach of an implied covenant of good faith and fair dealing. On March 21, 2022, we, FHFA and Freddie Mac filed a motion for summary judgment on plaintiffs’ remaining claim and plaintiffs filed a motion for partial summary judgment.
Given the stage of these lawsuits, the substantial and novel legal questions that remain, and our substantial defenses, we are currently unable to estimate the reasonably possible loss or interim financial statements willrange of loss arising from this litigation.
14. Regulatory Capital Requirements
FHFA published a final rule establishing a new enterprise regulatory capital framework for the GSEs in December 2020. FHFA published a final rule amending the enterprise regulatory capital framework in March 2022. We refer to the rule’s requirements, as amended, as the “enterprise regulatory capital framework.” The enterprise regulatory capital framework establishes new supplemental leverage and risk-based capital requirements for the GSEs. Under the leverage capital requirements, we must maintain a tier 1 capital ratio of 2.5% of adjusted total assets. Under the risk-based capital requirements, we must maintain minimum common equity tier 1 capital, tier 1 capital, and adjusted total capital ratios of 4.5%, 6%, and 8%, respectively, of risk-weighted assets. The enterprise regulatory capital framework requires substantially higher levels of capital than the previously applicable statutory minimum capital requirement.
Although the enterprise regulatory capital framework went into effect in February 2021, we are not be prevented or detected on a timely basis.
Management has determined that we continuedrequired to havehold capital according to the following material weakness as of March 31, 2021 and as offramework’s requirements until the date of filing this report:termination of our conservatorship, or such later date as may be ordered by FHFA.
The enterprise regulatory capital framework provides a granular assessment of credit risk specific to different mortgage loan categories, as well as components for market risk and operational risk. The enterprise regulatory capital framework includes the following requirements:
•Disclosure ControlsSupplemental capital requirements relating to the amount and Procedures. We have been under the conservatorship of FHFA since September 6, 2008. Under the GSE Act, FHFA is an independent agency that currently functions as both our conservator and our regulator with respect to our safety, soundness and mission. Becauseform of the naturecapital we hold, based largely on definitions of capital used in U.S. banking regulators’ regulatory capital framework. The enterprise regulatory capital framework specifies complementary leverage and risk-based requirements, which together determine the conservatorship under the GSE Act, which places us under the “control”requirements for each tier of FHFA (as that term is defined by securities laws), some of the informationcapital;
•A requirement that we may needhold prescribed capital buffers that can be drawn down in periods of financial stress and then rebuilt over time as economic conditions improve. If we fall below the prescribed buffer amounts, we must restrict capital distributions such as stock repurchases and dividends, as well as discretionary bonus payments to meet our disclosure obligations mayexecutives, until the buffer amounts are restored. The prescribed capital buffers represent the amount of capital we are required to hold above the minimum leverage and risk-based capital requirements.
◦The prescribed leverage buffer amount (“PLBA”) represents the amount of tier 1 capital we are required to hold above the minimum tier 1 leverage capital requirement;
◦The risk-based capital buffers consist of three separate components: a stability capital buffer, a stress capital buffer, and a countercyclical capital buffer. Taken together, these risk-based buffers comprise the prescribed capital conservation buffer amount (“PCCBA”). The PCCBA must be solely withincomprised entirely of common equity tier 1 capital; and
•Specific minimum percentages, or “floors,” on the knowledgerisk-weights applicable to single-family and multifamily exposures, as well as retained portions 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 implementcredit risk transfer transactions.
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Fannie Mae (In conservatorship) First Quarter 20212022 Form 10-Q | 120115 |
| | | | | | | | |
| Notes to Condensed Consolidated Financial Statements | Regulatory Capital Requirements |
The table below sets forth information about our capital requirements under the standardized approach of the enterprise regulatory capital framework. Available capital for purposes of the enterprise regulatory capital framework excludes the stated value of the senior preferred stock ($120.8 billion) and other amounts specified in footnote 2 to the table. Because of these exclusions, we had a deficit in available capital as of March 31, 2022, even though we had positive net worth under GAAP of $51.8 billion as of March 31, 2022.
As of March 31, 2022, we had a $272 billion shortfall of our available capital (deficit) as shown in the table below to the adjusted total capital requirement (including buffers) of $190 billion under the standardized approach of the rule. As of March 31, 2022, our risk-based adjusted total capital requirement (including buffers) represented the amount of capital needed to be fully capitalized under the standardized approach to the rule.
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Capital Metrics under the Enterprise Regulatory Capital Framework as of March 31, 2022(1) |
| (Dollars in billions) |
| Adjusted total assets | $ | 4,529 | | | | | | | | | | | |
| Risk-weighted assets | 1,391 | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Amounts | | Ratios |
| | Available Capital (Deficit)(2) | | Minimum Capital Requirement | | Total Capital Requirement (including Buffers)(4) | | Available Capital (Deficit) Ratio(3) | | Minimum Capital Ratio Requirement | | Total Capital Requirement Ratio (including Buffers)(3) |
| Risk-based capital: | | | | | | | | | | | |
| Total capital(5) | $ | (63) | | | $ | 111 | | | $ | 111 | | | (4.5) | % | | 8.0 | % | | 8.0 | % |
| Common equity tier 1 capital | (101) | | | 63 | | 142 | | | (7.3) | | | 4.5 | | | 10.2 | |
| Tier 1 capital | (82) | | | 83 | | 162 | | | (5.9) | | | 6.0 | | | 11.6 | |
| Adjusted total capital | (82) | | | 111 | | 190 | | | (5.9) | | | 8.0 | | | 13.6 | |
| Leverage capital: | | | | | | | | | | | |
| Core capital(6) | (69) | | | 113 | | | 113 | | | (1.5) | | | 2.5 | | | 2.5 | |
| Tier 1 capital | (82) | | | 113 | | | 136 | | | (1.8) | | | 2.5 | | | 3.0 | |
(1)Ratios are calculated as a percentage of risk-weighted assets for risk-based capital metrics and as a percentage of adjusted total assets for leverage capital metrics.
(2)Available capital (deficit) for all line items excludes the stated value of the senior preferred stock ($120.8 billion). Available capital (deficit) for all line items except total capital and core capital also deducts a portion of deferred tax assets. Deferred tax assets arising from temporary differences between GAAP and tax requirements are deducted from capital to the extent they exceed 10% of common equity. As of March 31, 2022, this resulted in the full deduction of deferred tax assets ($13.1 billion) from our available capital (deficit). Available capital (deficit) for common equity tier 1 capital also excludes the value of the non-cumulative perpetual preferred stock ($19.1 billion).
(3)Available capital (deficit) as a percentage of risk-weighted assets. Ratios are negative because we had a deficit in available capital for each tier of capital.
(4)The applicable buffer for common equity tier 1 capital, tier 1 capital, and adjusted total capital is the PCCBA, comprised of a stress capital buffer, a stability capital buffer, and a countercyclical capital buffer. The applicable buffer for tier 1 capital (leverage based) is the PLBA. The stress capital buffer and countercyclical capital buffer are each calculated by multiplying prescribed factors by adjusted total assets as of the last day of the previous calendar quarter. The 2022 stability capital buffer is calculated by multiplying a factor determined based on our share of mortgage debt outstanding by adjusted total assets as of December 31, 2020. The prescribed leverage buffer for 2022 is set at 50% of the 2022 stability buffer. Going forward the stability buffer and the prescribed leverage buffer will be updated with an effective date that depends on whether the stability capital buffer increases or decreases relative to the previously calculated value.
(5)The sum of (a) core capital (see definition in footnote 6 below); and (b) a general allowance for foreclosure losses, which (i) shall include an allowance for portfolio mortgage losses, an allowance for non-reimbursable foreclosure costs on government claims, and an allowance for liabilities reflected on the balance sheet for estimated foreclosure losses on mortgage-backed securities; and (ii) shall not include any reserves made or held against specific assets; and (c) any other amounts from sources of funds available to absorb losses that the Director of FHFA by regulation determines are appropriate to include in determining total capital.
(6)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 or (b) senior preferred stock.
As a result of our capital shortfall, our maximum payout ratio under the enterprise regulatory capital framework as of March 31, 2022 was 0%. While it is not applicable until we are required to comply with the capital requirements under the enterprise regulatory capital framework, our maximum payout ratio represents the percentage of eligible retained income that we are permitted to pay out in the form of distributions or discretionary bonus payments under the enterprise regulatory capital framework. The maximum payout ratio for a given quarter is the lowest of the payout ratios determined by our capital conservation buffer and our leverage buffer.
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| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 116 |
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| | ControlsQuantitative and ProceduresQualitative Disclosures about Market Risk |
disclosure policiesItem 3. Quantitative and Qualitative Disclosures about Market Risk
Information about market risk is set forth in “MD&A—Risk Management—Market Risk Management, including Interest-Rate Risk Management.”
Item 4. Controls and Procedures
Overview
We are required under applicable laws and regulations to maintain controls and procedures, that would account for the conservatorship and accomplish the same objectives as awhich include disclosure controls and procedures policyas well as internal control over financial reporting, as further described below.
Evaluation of a typical reporting company, there are inherent structural limitations on our ability to design, implement, test or operate effective disclosureDisclosure Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures. As both our regulatorprocedures refer to controls and our conservatorother procedures designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the GSEExchange Act FHFA is limitedrecorded, processed, summarized and reported within the time periods specified in its abilitythe rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to designprovide 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 implement a complete set ofcommunicated 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, 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 themanagement recognizes that any controls and procedures, for which FHFA is responsible.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.
Due to these circumstances, we have not been able to updateEvaluation 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 in effect as of March 31, 2022, the end of the period covered by this report. As a mannerresult 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 March 31, 2022 or as of the date of filing this report.
Our disclosure controls and procedures were not effective as of March 31, 2022 or as of the date of filing this report because they did not adequately ensuresensure the accumulation and communication to management of information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws, including disclosures affecting our condensed consolidated financial statements.laws. As a result, we didwere not maintain effectiveable to rely upon the disclosure controls and procedures designed to ensure complete and accurate disclosure as required by GAAPthat were in place as of March 31, 20212022 or as of the date of this filing, this report.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, we do not expect to remediate this material weakness while we are under conservatorship.
Mitigating Actions Related to Material Weakness
As described above under “Description of Material Weakness,” we continue to have a material weakness in our internal control over financial reporting relating to our disclosure controls and procedures. However, we and FHFA have engaged in the following practices intended to permit accumulation and communication to management of information needed to meet our disclosure obligations under the federal securities laws:
•FHFA has established the Division of Resolutions, which is intended to facilitate operation of the company with the oversight of the conservator.
•We have provided drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also have provided drafts of external press releases, statements and speeches to FHFA personnel for their review and comment prior to release.
•FHFA personnel, including senior officials, have reviewed our SEC filings prior to filing, including this quarterly report on Form 10-Q for the quarter ended March 31, 2021 (“First Quarter 2021 Form 10-Q”), and engaged in discussions regarding issues associated with the information contained in those filings. Prior to filing our First Quarter 2021 Form 10-Q, FHFA provided Fannie Mae management with written acknowledgment that it had reviewed the First Quarter 2021 Form 10-Q, and it was not aware of any material misstatements or omissions in the First Quarter 2021 Form 10-Q and had no objection to our filing the First Quarter 2021 Form 10-Q.
•Our senior management meets regularly with senior leadership at FHFA, including, but not limited to, the Director.
•FHFA representatives attend meetings frequently with various groups within the company to enhance the flow of information and to provide oversight on a variety of matters, including accounting, credit and market risk management, external communications and legal matters.
•Senior officials within FHFA’s Office of the Chief Accountant have met frequently with our senior finance executives regarding our accounting policies, practices and procedures.
Changes in Internal Control Over Financial Reporting
Management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, whether any changes in our internal control over financial reporting that occurred during our last fiscal quarter have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Below we describe changes in our internal control over financial reporting from January 1, 2021 through March 31, 2021 that management believes have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting:
•Overview. In the ordinary course of business, we review our system of internal control over financial reporting and make changes that we believe will improve these controls and increase efficiency, while continuing to ensure that we maintain effective internal controls. Changes may include implementing new, more efficient systems, automating manual processes and updating existing systems. For example, we are currently implementing changes to various financial system applications in stages across the company. As we continue to implement these changes, each implementation may become a significant component of our internal control over financial reporting.
•Implementation of hedge accounting. In January 2021, we implemented a hedge accounting program, which resulted in significant changes to our accounting processes and control environment. The implementation
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Fannie Mae First Quarter 2021 Form 10-Q | 121 |
included the development of a new model and significant modifications to existing applications, including our existing accounting systems for loans, debt and derivatives. The hedge accounting program was utilized during the first quarter of 2021, and the new processes and controls implemented as part of this program were used to prepare our condensed consolidated financial statements for the first quarter of 2021 included in this report. We will continue to monitor and test these new and modified controls for adequate design and operating effectiveness.
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Fannie Mae First Quarter 2021 Form 10-Q | 122 |
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
The information in this item supplements and updates information regarding certain legal proceedings set forth in “Legal Proceedings” in our 2020 Form 10-K. We also provide information regarding material legal proceedings in “Note 13, Commitments and Contingencies,” which is incorporated herein by reference. In addition to the matters specifically described or incorporated by reference in this item, we are involved in a number of legal and regulatory proceedings that arise in the ordinary course of business that we do not expect will have a material impact on our business or financial condition. However, litigation claims and proceedings of all types are subject to many factors and their outcome and effect on our business and financial condition generally cannot be predicted accurately.
We establish an accrual for legal claims only when a loss is probable and we can reasonably estimate the amount of such loss. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those claims. If certain of these matters are determined against us, FHFA or Treasury, it could have a material adverse effect on our results of operations, liquidity and financial condition, including our net worth.
Senior Preferred Stock Purchase Agreements Litigation
A consolidated class action (“In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations”) and a non-class action lawsuit, Fairholme Funds v. FHFA, filed by Fannie Mae and Freddie Mac shareholders against us, FHFA as our conservator, and Freddie Mac are pending in the U.S. District Court for the District of Columbia, with trials scheduled to begin on July 11, 2022. The lawsuits challenge the August 2012 amendment to each company’s senior preferred stock purchase agreement with Treasury.
Plaintiffs in these lawsuits filed amended complaints on November 1, 2017 alleging that the net worth sweep dividend provisions of the senior preferred stock that were implemented pursuant to the August 2012 amendments nullified certain of the shareholders’ rights, particularly the right to receive dividends. Plaintiffs seek damages, equitable and injunctive relief, and costs and expenses, including attorneys’ fees. Plaintiffs in the class action represent a class of Fannie Mae preferred shareholders and classes of Freddie Mac common and preferred shareholders. On September 28, 2018, the court dismissed all of the plaintiffs’ claims except for their claims for breach of an implied covenant of good faith and fair dealing. On March 21, 2022, we, FHFA and Freddie Mac filed a motion for summary judgment on plaintiffs’ remaining claim and plaintiffs filed a motion for partial summary judgment.
Given the stage of these lawsuits, the substantial and novel legal questions that remain, and our substantial defenses, we are currently unable to estimate the reasonably possible loss or range of loss arising from this litigation.
14. Regulatory Capital Requirements
FHFA published a final rule establishing a new enterprise regulatory capital framework for the GSEs in December 2020. FHFA published a final rule amending the enterprise regulatory capital framework in March 2022. We refer to the rule’s requirements, as amended, as the “enterprise regulatory capital framework.” The enterprise regulatory capital framework establishes new supplemental leverage and risk-based capital requirements for the GSEs. Under the leverage capital requirements, we must maintain a tier 1 capital ratio of 2.5% of adjusted total assets. Under the risk-based capital requirements, we must maintain minimum common equity tier 1 capital, tier 1 capital, and adjusted total capital ratios of 4.5%, 6%, and 8%, respectively, of risk-weighted assets. The enterprise regulatory capital framework requires substantially higher levels of capital than the previously applicable statutory minimum capital requirement.
Although the enterprise regulatory capital framework went into effect in February 2021, we are not required to hold capital according to the framework’s requirements until the date of termination of our conservatorship, or such later date as may be ordered by FHFA.
The enterprise regulatory capital framework provides a granular assessment of credit risk specific to different mortgage loan categories, as well as components for market risk and operational risk. The enterprise regulatory capital framework includes the following requirements:
•Supplemental capital requirements relating to the amount and form of the capital we hold, based largely on definitions of capital used in U.S. banking regulators’ regulatory capital framework. The enterprise regulatory capital framework specifies complementary leverage and risk-based requirements, which together determine the requirements for each tier of capital;
•A requirement that we hold prescribed capital buffers that can be drawn down in periods of financial stress and then rebuilt over time as economic conditions improve. If we fall below the prescribed buffer amounts, we must restrict capital distributions such as stock repurchases and dividends, as well as discretionary bonus payments to executives, until the buffer amounts are restored. The prescribed capital buffers represent the amount of capital we are required to hold above the minimum leverage and risk-based capital requirements.
◦The prescribed leverage buffer amount (“PLBA”) represents the amount of tier 1 capital we are required to hold above the minimum tier 1 leverage capital requirement;
◦The risk-based capital buffers consist of three separate components: a stability capital buffer, a stress capital buffer, and a countercyclical capital buffer. Taken together, these risk-based buffers comprise the prescribed capital conservation buffer amount (“PCCBA”). The PCCBA must be comprised entirely of common equity tier 1 capital; and
•Specific minimum percentages, or “floors,” on the risk-weights applicable to single-family and multifamily exposures, as well as retained portions of credit risk transfer transactions.
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| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 115 |
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| Notes to Condensed Consolidated Financial Statements | Regulatory Capital Requirements |
The table below sets forth information about our capital requirements under the standardized approach of the enterprise regulatory capital framework. Available capital for purposes of the enterprise regulatory capital framework excludes the stated value of the senior preferred stock ($120.8 billion) and other amounts specified in footnote 2 to the table. Because of these exclusions, we had a deficit in available capital as of March 31, 2022, even though we had positive net worth under GAAP of $51.8 billion as of March 31, 2022.
As of March 31, 2022, we had a $272 billion shortfall of our available capital (deficit) as shown in the table below to the adjusted total capital requirement (including buffers) of $190 billion under the standardized approach of the rule. As of March 31, 2022, our risk-based adjusted total capital requirement (including buffers) represented the amount of capital needed to be fully capitalized under the standardized approach to the rule.
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Capital Metrics under the Enterprise Regulatory Capital Framework as of March 31, 2022(1) |
| (Dollars in billions) |
| Adjusted total assets | $ | 4,529 | | | | | | | | | | | |
| Risk-weighted assets | 1,391 | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Amounts | | Ratios |
| | Available Capital (Deficit)(2) | | Minimum Capital Requirement | | Total Capital Requirement (including Buffers)(4) | | Available Capital (Deficit) Ratio(3) | | Minimum Capital Ratio Requirement | | Total Capital Requirement Ratio (including Buffers)(3) |
| Risk-based capital: | | | | | | | | | | | |
| Total capital(5) | $ | (63) | | | $ | 111 | | | $ | 111 | | | (4.5) | % | | 8.0 | % | | 8.0 | % |
| Common equity tier 1 capital | (101) | | | 63 | | 142 | | | (7.3) | | | 4.5 | | | 10.2 | |
| Tier 1 capital | (82) | | | 83 | | 162 | | | (5.9) | | | 6.0 | | | 11.6 | |
| Adjusted total capital | (82) | | | 111 | | 190 | | | (5.9) | | | 8.0 | | | 13.6 | |
| Leverage capital: | | | | | | | | | | | |
| Core capital(6) | (69) | | | 113 | | | 113 | | | (1.5) | | | 2.5 | | | 2.5 | |
| Tier 1 capital | (82) | | | 113 | | | 136 | | | (1.8) | | | 2.5 | | | 3.0 | |
(1)Ratios are calculated as a percentage of risk-weighted assets for risk-based capital metrics and as a percentage of adjusted total assets for leverage capital metrics.
(2)Available capital (deficit) for all line items excludes the stated value of the senior preferred stock ($120.8 billion). Available capital (deficit) for all line items except total capital and core capital also deducts a portion of deferred tax assets. Deferred tax assets arising from temporary differences between GAAP and tax requirements are deducted from capital to the extent they exceed 10% of common equity. As of March 31, 2022, this resulted in the full deduction of deferred tax assets ($13.1 billion) from our available capital (deficit). Available capital (deficit) for common equity tier 1 capital also excludes the value of the non-cumulative perpetual preferred stock ($19.1 billion).
(3)Available capital (deficit) as a percentage of risk-weighted assets. Ratios are negative because we had a deficit in available capital for each tier of capital.
(4)The applicable buffer for common equity tier 1 capital, tier 1 capital, and adjusted total capital is the PCCBA, comprised of a stress capital buffer, a stability capital buffer, and a countercyclical capital buffer. The applicable buffer for tier 1 capital (leverage based) is the PLBA. The stress capital buffer and countercyclical capital buffer are each calculated by multiplying prescribed factors by adjusted total assets as of the last day of the previous calendar quarter. The 2022 stability capital buffer is calculated by multiplying a factor determined based on our share of mortgage debt outstanding by adjusted total assets as of December 31, 2020. The prescribed leverage buffer for 2022 is set at 50% of the 2022 stability buffer. Going forward the stability buffer and the prescribed leverage buffer will be updated with an effective date that depends on whether the stability capital buffer increases or decreases relative to the previously calculated value.
(5)The sum of (a) core capital (see definition in footnote 6 below); and (b) a general allowance for foreclosure losses, which (i) shall include an allowance for portfolio mortgage losses, an allowance for non-reimbursable foreclosure costs on government claims, and an allowance for liabilities reflected on the balance sheet for estimated foreclosure losses on mortgage-backed securities; and (ii) shall not include any reserves made or held against specific assets; and (c) any other amounts from sources of funds available to absorb losses that the Director of FHFA by regulation determines are appropriate to include in determining total capital.
(6)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 or (b) senior preferred stock.
As a result of our capital shortfall, our maximum payout ratio under the enterprise regulatory capital framework as of March 31, 2022 was 0%. While it is not applicable until we are required to comply with the capital requirements under the enterprise regulatory capital framework, our maximum payout ratio represents the percentage of eligible retained income that we are permitted to pay out in the form of distributions or discretionary bonus payments under the enterprise regulatory capital framework. The maximum payout ratio for a given quarter is the lowest of the payout ratios determined by our capital conservation buffer and our leverage buffer.
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| Fannie Mae (In conservatorship) First Quarter 2022 Form 10-Q | 116 |
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| Quantitative and Qualitative Disclosures about Market Risk |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Information about market risk is set forth in “MD&A—Risk Management—Market Risk Management, including Interest-Rate Risk Management.”
Item 4. Controls and Procedures
Overview
We are required under applicable laws and regulations to maintain controls and procedures, which include disclosure controls and procedures as well as internal control over financial reporting, as further described below.
Evaluation of Disclosure Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures refer to controls and other procedures designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the 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 in effect as of March 31, 2022, 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 March 31, 2022 or as of the date of filing this report.
Our disclosure controls and procedures were not effective as of March 31, 2022 or as of the date of filing this report because they did not adequately ensure the accumulation and communication to management of information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws. As a result, we were not able to rely upon the disclosure controls and procedures that were in place as of March 31, 2022 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, we do not expect to remediate this material weakness while we are under conservatorship.
Description of Material Weakness
The Public Company Accounting Oversight Board’s Auditing Standard 2201 defines a material weakness as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the 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 March 31, 2022 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 GSE Act, FHFA is an independent agency that currently functions as both our conservator and our regulator with respect to our safety, soundness and mission. Because of the nature of the conservatorship under the GSE Act, which places us under the “control” of FHFA (as that term is defined by securities laws), some of the information that we may need to meet our disclosure obligations may be solely within the knowledge of FHFA. As our conservator, FHFA has the power to take actions without our knowledge that could be material to our shareholders and other stakeholders, and could significantly affect our financial performance or our continued existence as an ongoing business. Although we and FHFA attempted to design and implement
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| Fannie Mae First Quarter 2022 Form 10-Q | 117 |
disclosure policies and procedures that would account for the conservatorship and accomplish the same objectives as a disclosure controls and procedures policy of a typical reporting company, there are inherent structural limitations on our ability to design, implement, test or operate effective disclosure controls and procedures. As both our regulator and our conservator under the GSE Act, FHFA is limited in its ability to design and implement a complete set of disclosure controls and procedures relating to Fannie Mae, particularly with respect to current reporting pursuant to Form 8-K. Similarly, as a regulated entity, we are limited in our ability to design, implement, operate and test the controls and procedures for which FHFA is responsible.
Due to these circumstances, we have not been able to update our disclosure controls and procedures in a manner that adequately ensures the accumulation and communication to management of information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws, including disclosures affecting our condensed consolidated financial statements. As a result, we did not maintain effective controls and procedures designed to ensure complete and accurate disclosure as required by GAAP as of March 31, 2022 or as of the date of filing this report. Based on discussions with FHFA and the structural nature of this weakness, we do not expect to remediate this material weakness while we are under conservatorship.
Mitigating Actions Related to Material Weakness
As described above under “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 Division of Conservatorship Oversight and Readiness, which is intended to facilitate operation of the company with the oversight of the conservator.
•We have provided drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also have provided drafts of external press releases, statements and speeches to FHFA personnel for their review and comment prior to release.
•FHFA personnel, including senior officials, have reviewed our SEC filings prior to filing, including this quarterly report on Form 10-Q for the quarter ended March 31, 2022 (“First Quarter 2022 Form 10-Q”), and engaged in discussions regarding issues associated with the information contained in those filings. Prior to filing our First Quarter 2022 Form 10-Q, FHFA provided Fannie Mae management with written acknowledgment that it had reviewed the First Quarter 2022 Form 10-Q, and it was not aware of any material misstatements or omissions in the First Quarter 2022 Form 10-Q and had no objection to our filing the First Quarter 2022 Form 10-Q.
•Our senior management meets regularly with senior leadership at FHFA, including, but not limited to, the Acting Director.
•FHFA representatives attend meetings frequently with various groups within the company to enhance the flow of information and to provide oversight on a variety of matters, including accounting, credit and market risk management, external communications and legal matters.
•Senior officials within FHFA’s Office of the Chief Accountant have met frequently with our senior finance executives regarding our accounting policies, practices and procedures.
Changes in Internal Control Over Financial Reporting
Management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, whether any changes in our internal control over financial reporting that occurred during our last fiscal quarter have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Below we describe changes in our internal control over financial reporting from January 1, 2022 through March 31, 2022 that management believes have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting:
•Overview. In the ordinary course of business, we review our system of internal control over financial reporting and make changes that we believe will improve these controls and increase efficiency, while continuing to ensure that we maintain effective internal controls. Changes may include implementing new, more efficient systems, automating manual processes and updating existing systems.
•Implementation of new enterprise resource planning solution. In January 2022, we implemented a new multifaceted enterprise resource planning solution, which included our general ledger and other corporate accounting functions. This implementation resulted in considerable changes to our processes and control environment, including significant modifications to existing applications, interfaces and reports. The new general ledger was used during the first quarter of 2022, and the new and modified processes and controls
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| Fannie Mae First Quarter 2022 Form 10-Q | 118 |
implemented as part of the new general ledger were used to prepare our condensed consolidated financial statements for the first quarter of 2022 included in this report. We will continue to monitor and test these new and modified controls for adequate design and operating effectiveness.
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| Fannie Mae First Quarter 2022 Form 10-Q | 119 |
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
The information in this item supplements and updates information regarding certain legal proceedings set forth in “Legal Proceedings” in our 2021 Form 10-K. We also provide information regarding material legal proceedings in “Note 13, Commitments and Contingencies,” which is incorporated herein by reference. In addition to the matters specifically described or incorporated by reference in this item, we are involved in legal and regulatory proceedings that arise in the ordinary course of business that we do not expect will have a material impact on our business or financial condition. However, litigation claims and proceedings of all types are subject to many factors and their outcome and effect on our business and financial condition generally cannot be predicted accurately.
We establish an accrual for legal claims only when a loss is probable and we can reasonably estimate the amount of such loss. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those claims. If certain of these matters are determined against us, FHFA or Treasury, it could have a material adverse effect on our results of operations, liquidity and financial condition, including our net worth.
Senior Preferred Stock Purchase Agreements Litigation
Between June 2013 and August 2018, preferred and common stockholders of Fannie Mae and Freddie Mac filed lawsuits in multiple federal courts against one or more of the United States, Treasury and FHFA, challenging actions taken by the defendants relating to the Fannie Mae and Freddie Mac senior preferred stock purchase agreements and the conservatorships of Fannie Mae and Freddie Mac. Some of these lawsuits also contain claims against Fannie Mae and Freddie Mac. The legal claims being advanced by one or more of these lawsuits include challenges to the net worth sweep dividend provisions of the senior preferred stock that were implemented pursuant to August 2012 amendments to the agreements, the payment of dividends to Treasury under the net worth sweep dividend provisions, and FHFA’s decision to require Fannie Mae and Freddie Mac to draw funds from Treasury in order to pay dividends to Treasury prior to the August 2012 amendments. Some of the lawsuits also challenge the constitutionality of FHFA’s structure. The plaintiffs seek various forms of equitable and injunctive relief including rescission of the August 2012 amendments, as well as damages.
Amendments to our senior preferred stock purchase agreement made pursuant to the January 2021 letter agreement provide that we may take certain actions without Treasury’s prior written consent only when all currently pending significant litigation relating to the conservatorship and to the August 2012 amendments to the agreement has been resolved. For more information, see “Business—Conservatorship, Treasury Agreements and Housing Finance Reform—Treasury Agreements” in our 2020 Form 10-K. The cases that remain pending after December 31, 20202021 are as follows:
District of Columbia. Fannie Mae is a defendant in threetwo cases pending in the U.S. District Court for the District of Columbia—Columbia, including a consolidated putative class action and two additional cases.action. In all threeboth cases, Fannie Mae and Freddie Mac stockholders filed amended complaints on November 1, 2017 against us, FHFA as our conservator and Freddie Mac. On September 28, 2018, the court dismissed all of the plaintiffs’ claims in these cases, except for their claims for breach of an implied covenant of good faith and fair dealing. All threeTrials in these cases are scheduled to begin on July 11, 2022. Both cases are described in “Note 13, Commitments and Contingencies.”
Southern District of Texas (Collins v. Mnuchin)Yellen). On October 20, 2016, preferred and common stockholders filed a complaint against FHFA and Treasury in the U.S. District Court for the Southern District of Texas. On May 22, 2017, the court dismissed the case. On September 6, 2019, the U.S. Court of Appeals for the Fifth Circuit, sitting en banc, affirmed the district court’s dismissal of claims against Treasury, but reversed the dismissal of claims against FHFA. The court
On June 23, 2021, the U.S. Supreme Court held that plaintiffs could pursue their claim that FHFA exceededdid not exceed its statutory powers as conservator when it implementedagreed to the net worth sweep dividend provisions of the third amendment to the senior preferred stock purchase agreements in August 2012. The court also held that the provision of the Housing and Economic Recovery Act of 2008 that insulatesrestricts the President’s power to remove the FHFA Director from removal without cause violates constitutionalthe Constitution’s separation of powers principles and, thus, that the FHFA Director may be removed by the presidentPresident for any reason. The court held thatrejected plaintiffs’ request to rescind the appropriate remedy for this violation isthird amendment to declare the provision severed from the statute. Both the plaintiffs and the government filed petitions withsenior preferred stock purchase agreements. However, the Supreme Court seeking review ofremanded the case to the Fifth Circuit’s decision. The Supreme Court heard oral argumentCircuit for further proceedings on December 9, 2020, and we expectthe sole issue of whether the stockholders suffered compensable harm related to the constitutional claim during the limited time-period when a decisionSenate-confirmed FHFA Director was in thatoffice. On March 4, 2022, the Fifth Circuit remanded the case withinto the next few months.district court for further proceedings on the compensable harm issue.
Western District of Michigan. On June 1, 2017, preferred and common stockholders of Fannie Mae and Freddie Mac filed a complaint for declaratory and injunctive relief against FHFA and Treasury in the U.S. District Court for the Western District of Michigan. FHFA and Treasury moved to dismiss the case on September 8, 2017, and plaintiffs filed a motion for summary judgment on October 6, 2017. On September 8, 2020, the court denied plaintiffs’ motion for
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Fannie Mae First Quarter 2021 Form 10-Q | 123 |
summary judgment and granted defendants’ motion to dismiss. The plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the Sixth Circuit on October 27, 2020.
District of Minnesota. On June 22, 2017, preferred and common stockholders of Fannie Mae and Freddie Mac filed a complaint for declaratory and injunctive relief against FHFA and Treasury in the U.S. District Court for the District of Minnesota. The court dismissed the case on July 6, 2018, and plaintiffs filed a notice of appeal with2018. On October 6, 2021, the U.S. Court of Appeals for the Eighth
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| Fannie Mae First Quarter 2022 Form 10-Q | 120 |
Circuit on July 10, 2018.affirmed in part and reversed in part the district court’s ruling and remanded the case to the district court to determine whether the stockholders suffered compensable harm and are entitled to retrospective relief. On January 26, 2022, plaintiffs filed an amended complaint. On March 11 and March 14, 2022, Treasury and FHFA each filed motions to dismiss the new complaint.
Eastern District of Pennsylvania. On August 16, 2018, common stockholders of Fannie Mae and Freddie Mac filed a complaint for declaratory and injunctive relief against FHFA and Treasury in the U.S. District Court for the Eastern District of Pennsylvania. FHFA and Treasury moved to dismiss the case on November 16, 2018, and plaintiffs filed a motion for summary judgment on December 21, 2018.
U.S. Court of Federal Claims. Numerous cases are pending against the United States in the U.S. Court of Federal Claims. Fannie Mae is a nominal defendant in four of these cases: Fisher v. United States of America, filed on December 2, 2013; Rafter v. United States of America, filed on August 14, 2014; Perry Capital LLC v. United States of America, filed on August 15, 2018; and Fairholme Funds Inc. v. United States, which was originally filed on July 9, 2013, and amended publicly to include Fannie Mae as a nominal defendant on October 2, 2018. Plaintiffs in these cases allege that the net worth sweep dividend provisions of the senior preferred stock that were implemented pursuant to the August 2012 amendment constitute a taking of Fannie Mae’s property without just compensation in violation of the U.S. Constitution. The Fisher plaintiffs are pursuing this claim derivatively on behalf of Fannie Mae, while the Rafter, Perry Capital and Fairholme Funds plaintiffs are pursuing the claim both derivatively and directly against the United States. Plaintiffs in Rafter also allege direct and derivative breach of contract claims against the government. The Perry Capital and Fairholme Funds plaintiffs allege similar breach of contract claims, as well as direct and derivative breach of fiduciary duty claims against the government. Plaintiffs in Fisher request just compensation to Fannie Mae in an unspecified amount. Plaintiffs in Rafter, Perry Capital and Fairholme Funds seek just compensation for themselves on their direct claims and payment of damages to Fannie Mae on their derivative claims. The United States filed a motion to dismiss the Fisher, Rafter and Fairholme Funds cases on August 1, 2018. On December 6, 2019, the court entered an order in the Fairholme Funds case that granted the government’s motion to dismiss all the direct claims but denied the motion as to all of the derivative claims brought on behalf of Fannie Mae. On June 18, 2020, the U.S. Court of Appeals for the Federal Circuit agreed to hear the appeal of the court’s December 6, 2019 order. In the Fisher case, the court denied the government’s motion to dismiss on May 8, 2020 and, on August 21, 2020, the Federal Circuit denied the Fisher plaintiffs’ request for interlocutory appeal. On February 22, 2022, in the Fairholme Funds case, the Federal Circuit affirmed the dismissal of the plaintiffs’ direct claims, but reversed the U.S. Court of Federal Claims’ ruling on plaintiffs’ derivative claims, holding that those claims should also be dismissed.
Item 1A. Risk Factors
In addition to the information in this report, you should carefully consider the risks relating to our business that we identify in “Risk Factors” in our 20202021 Form 10-K.This10-K. This section supplements and updates that discussion. Also refer to “MD&A—Risk Management,” “MD&A—Single-Family Business” and “MD&A—Multifamily Business” in our 20202021 Form 10-K and in this report for more detailed descriptions of the primary risks to our business and how we seek to manage those risks.
The risks we face could materially adversely affect our business, results of operations, financial condition, liquidity and net worth, and could cause our actual results to differ materially from our past results or the results contemplated by any forward-looking statements we make. We believe the risks described in the sections of this report and our 20202021 Form 10-K identified above are the most significant we face; however, these are not the only risks we face. We face additional risks and uncertainties not currently known to us or that we currently believe are immaterial.
Operational RiskOur business and financial results are affected by general economic conditions, including home prices and employment trends, and changes in economic conditions or financial markets may materially adversely affect our business and financial condition.
A breachIn general, a prolonged period of slow growth in the U.S. economy or any deterioration in general economic conditions or financial markets could materially adversely affect our results of operations, net worth and financial condition. Our business is significantly affected by the status of the security of our systems or facilities, or those of third parties with which we do business,U.S. economy, including as a result of cyber attacks, could damage or disrupt our business or result in the disclosure or misuse of confidential information, which could damage our reputation, result in regulatory sanctions and/or increase our costshome prices and cause losses.
Our operations rely on the secure receipt, processing, storage and transmission of confidential and other information in our computer systems and networks and with our business partners, including proprietary, confidential or personal information that is subject to privacy laws, regulations or contractual obligations. Information security risks for large institutions like us have significantly increased in recent years in part because of the proliferation of new technologies and the use of the Internet and telecommunications technologies to conduct or automate financial transactions. A number of financial services companies, consumer-based companies and other organizations have reported the unauthorized disclosure of client, customer or other confidential information,employment trends, as well as cyber attacks involvingeconomic output levels, interest and inflation rates, and shifts in fiscal and monetary policies. As described in “MD&A—Key Market Economic Indicators” in this report, we currently expect that a modest recession is likely to occur after this year, most likely in the dissemination, theftsecond half of 2023, resulting in an increase in the unemployment rate. We also expect slower home price growth in the second half of 2022 and destructionin 2023 and that some regions of corporate information, intellectual property, cash or other valuable assets. Therethe country may experience home price declines in 2023.
In recent years, the Federal Reserve has purchased a significant amount of mortgage-backed securities issued by us, Freddie Mac and Ginnie Mae. The Federal Reserve began to taper these purchases in November 2021 and concluded its asset purchase program in March 2022. In March 2022, the Federal Reserve stated that it would reinvest principal
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Fannie Mae First Quarter 20212022 Form 10-Q | 124121 |
havepayments from its holdings of both agency debt and agency mortgage-backed securities into agency mortgage-backed securities, and that it expects to begin reducing its holdings of agency debt and agency mortgage-backed securities. In March 2022, the Federal Reserve also been several highly publicized cases where hackers have requested “ransom” payments in exchange for not disclosing stolen customer information or for not disablingraised the target company’s computer or other systems.
We have been,range for the federal funds rate for the first time since 2018, and likely will continue to be,stated that it anticipates that ongoing increases in the target of cyber attacks, computer viruses, malicious code, phishing attacks, denial of service attacksrange will be appropriate. Mortgage interest rates have risen significantly following the Federal Reserve’s actions in March 2022 and other information security threats. To date, cyber attacks have not hadmay increase further. We expect the increase in mortgage interest rates will lead to a material impact on our financial condition, results or business. However, we could suffer material financial or other lossesslowdown in the future as a result of cyber attacks, and these attacks and their impacts are hard to predict. Our risk and exposure to these matters remains heightened because of, among other things:
•the evolving nature of these threats;
•the current global economic and political environment;
•our prominent size and scale and our rolehousing demand. A slowdown in the financial services industry;
•the outsourcing of some ofhousing demand would likely reduce our business operations;
•volume, demand for our mortgage-backed securities, and the ongoing shortagepace of qualified cybersecurity professionals;
•our migration to cloud-based systems;
•our increased use of employee-owned devices for business communication;
•the large number of our employees working remotely; and
•the interconnectivity and interdependence of third parties to our systems.
Despite our efforts to ensure the integrity of our software, computers, systems and information, we may not be able to anticipate, detect or recognize threats to our systems and assets, or to implement effective preventive measures against all cyber threats, especially because the techniques used are increasingly sophisticated, change frequently, are complex, and are often not recognized until launched. In addition, although we have not experienced any material impacts from the SolarWinds Orion cyber breach in late 2020,home price appreciation, which reportedly affected roughly 18,000 organizations, or the Microsoft Exchange cyber attack in early 2021, which reportedly affected over 30,000 organizations, these two recent large-scale cyber attacks suggest that the risk of damaging cyberattacks impacting us and/or third-parties with whom we do business is increasing. We believe these incidents are likely to continue, and we are unable to predict the direct or indirect impact of future attacks or breaches on business operations. We routinely identify cyber threats as well as vulnerabilities in our systems and work to address them, but these efforts may be insufficient. Further, these efforts involve costs that can be significant as cyber attack methods continue to rapidly evolve. Cyber attacks can originate from a variety of sources, including external parties who are affiliated with foreign governments or are involved with organized crime or terrorist organizations. Third parties may also attempt to induce employees, customers or other users of our systems to disclose sensitive information or provide access to our systems or network, or to our data or that of our counterparties or borrowers, and these types of risks may be difficult to detect or prevent.
The occurrence of a cyber attack, breach, unauthorized access, misuse, computer virus or other malicious code or other cybersecurity event could jeopardize or result in the unauthorized disclosure, gathering, monitoring, misuse, corruption, loss or destruction of confidential and other information that belongs to us, our customers, our counterparties, third-party service providers or borrowers that is processed and stored in, and transmitted through, our computer systems and networks. The occurrence of such an event could also result in damage to our software, computers or systems, or otherwise cause interruptions or malfunctions in our, our customers’, our counterparties’ or third parties’ operations. This could result in significant financial losses, loss of customers and business opportunities, reputational damage, litigation, regulatory fines, penalties or intervention, reimbursement or other compensatory costs, or otherwise adversely affect our business, financial condition or results of operations.
Cyber attacks can occur and persist for an extended period of time without detection. Investigations of cyber attacks are inherently unpredictable, and it takes time to complete an investigation and have full and reliable information. While we are investigating a cyber attack, we do not necessarily know the extent of the harm or how best to remediate it, and we can repeat or compound certain errors or actions before we discover and remediate them. In addition, announcing that a cyber attack has occurred increases the risk of additional cyber attacks, and preparing for this elevated risk can delay the announcement of a cyber attack. All or any of these challenges could further increase the costs and consequences of a cyber attack.
In addition, we may be required to expend significant additional resources to modify our protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. Although we maintain insurance coverage relating to cybersecurity risks, our insurance may not be sufficient to provide adequate loss coverage in all circumstances.
Because we are interconnected with and dependent on third-party vendors, exchanges, clearing houses, fiscal and paying agents, and other financial intermediaries, including CSS, we could be materially adversely impacted if any of
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Fannie Mae First Quarter 2021 Form 10-Q | 125 |
them is subject to a successful cyber attack or other information security event. Third parties with which we do business may also be sources of cybersecurity or other technological risks. We outsource certain functions and these relationships allow for the external storage and processing of our information, as well as customer, counterparty and borrower information, including on cloud-based systems. We also share this type of information with regulatory agencies and their vendors. While we engage in actions to mitigate our exposure resulting from our information-sharing activities, ongoing threats may result in unauthorized access, loss or destruction of data or other cybersecurity incidents with increased costs and consequences to us such as those described above.
We routinely transmit and receive personal, confidential and proprietary information by electronic means. In addition, our customers maintain personal, confidential and proprietary information on systems we provide. We have discussed and worked with customers, vendors, service providers, counterparties and other third parties to develop secure transmission capabilities and protect against cyber attacks, but we do not have, and may be unable to put in place, secure capabilities with all of our clients, vendors, service providers, counterparties and other third parties and we may not be able to ensure that these third parties have appropriate controls in place to protect the confidentiality of the information. An interception, misuse or mishandling of personal, confidential or proprietary information being sent to or received from a customer, vendor, service provider, counterparty or other third party could result in legal liability, regulatory action and reputational harm.
Market and Industry Risk
A deterioration in general economic conditions, including home prices and employment trends, or the financial markets may materially adversely affect our business and financial condition.
Our business is significantly affected by the status of the U.S. economy, particularly home prices and employment trends. A prolonged period of slow growth in the U.S. economy or any deterioration in general economic conditions or the financial markets could materially adversely affect our results of operations, net worth and financial condition. Given the level of fiscal and monetary policy support for the economy in 2020 and 2021, there is a risk that inflation may exceed the level desired by policy makers and currently anticipated in financial markets. This could lead the government to adopt various corrective measures designed to restrict the availability of credit and regulate growth to contain inflation, including curtailing its purchase of Treasury bonds and mortgage-backed securities or raising the interest the Federal Reserve charges financial institutions. Furthermore, interest rates may rise in anticipation of further inflation or a shift in monetary policy, which could lead to a rise in mortgage rates, a slowdown in housing demand and negatively affect home price appreciation. In general, if home prices decrease, or the unemployment rate increases, it could result in significantly higher levels of credit losses and credit-related expense.
Global economic conditions can also adversely affect our business and financial results. Changes or volatility in market conditions resulting from deterioration in or uncertainty regarding global economic conditions can adversely affect the value of our assets, which could materially adversely affect our results of operations, net worth and financial condition. Differing rates of economic recovery from the COVID-19 pandemic around the world along with continued dislocations in supply chains remain a concern for policy makers and financial markets. To the extent global economic conditions negatively affect the U.S. economy, they also could negatively affect the credit performance of the loans in our book of business.
Volatility or uncertainty in global or domestic political conditions also can significantly affect economic conditions and the financial markets. Global or domestic political unrest also could affect economic growth and financial markets. For example, the Russian invasion of Ukraine and related economic sanctions imposed on Russia, as well as any further actions by Russia, the United States or others relating to this conflict, may further impact the global economy and financial markets, which could further increase inflationary pressure and interest rates, as well as negatively affect economic growth and result in disruptions in the financial markets. We describe in “Risk Factors” in our 20202021 Form 10-K the risks to our business posed by changes in interest rates and changes in spreads. In addition, 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Common Stock
Our common stock is traded in the over-the-counter market and quoted on the OTCQB, operated by OTC Markets Group Inc., under the ticker symbol “FNMA.”
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Fannie Mae First Quarter 2021 Form 10-Q | 126 |
Recent Sales of Unregistered Equity Securities
Under the terms of our senior preferred stock purchase agreement with Treasury, we are prohibited from selling or issuing our equity interests without the prior written consent of Treasury except under limited circumstances, which are described in “Business—Conservatorship, Treasury Agreements and Housing Finance Reform—Treasury Agreements—Covenants under Treasury Agreements” in our 20202021 Form 10-K. During the quarter ended March 31, 2021,2022, we did not sell any equity securities.
Information about Certain Securities Issuances by Fannie Mae
Pursuant to SEC regulations, public companies are required to disclose certain information when they incur a material direct financial obligation or become directly or contingently liable for a material obligation under an off-balance sheet arrangement. The disclosure must be made in a current report on Form 8-K under Item 2.03 or, if the obligation is incurred in connection with certain types of securities offerings, in prospectuses for that offering that are filed with the SEC.
Because the securities we issue are exempted securities under the Securities Act of 1933, we do not file registration statements or prospectuses with the SEC with respect to our securities offerings. To comply with the disclosure requirements of Form 8-K relating to the incurrence of material financial obligations, we report our incurrence of these types of obligations either in offering circulars or prospectuses (or supplements thereto) that we post on our website or in a current report on 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 disclosed2004, we report our incurrence of these types of obligations in a prospectusoffering circulars or offering circular posted on our website, the document will be postedprospectuses (or supplements thereto) that we post on our website within the same time period that a prospectus for a non-exempt securities offering would be required to be filed with the SEC. To the extent we incur a material financial obligation that is not disclosed in this manner, we would file a Form 8-K if required to do so under applicable Form 8-K requirements.
The website address for disclosure about our debt securities is www.fanniemae.com/debtsearch. From this address, investors can access the offering circular and related supplements for debt securities offerings under Fannie Mae’s universal debt facility, including pricing supplements for individual issuances of debt securities.
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| Fannie Mae First Quarter 2022 Form 10-Q | 122 |
Disclosure about our obligations pursuant to the MBS we issue, some of which may be off-balance sheet obligations, can be found at www.fanniemae.com/mbsdisclosure. From this address, investors can access information and documents about our MBS, including prospectuses and related prospectus supplements.
We are providing our website address solely for your information. Information appearing on our website is not incorporated into this report.
Our Purchases of Equity Securities
We did not repurchase any of our equity securities during the first quarter of 2021.2022.
Dividend Restrictions
Our payment of dividends is subject to the following restrictions:
Restrictions Relating to Conservatorship. Our conservator announced on September 7, 2008 that we would not pay any dividends on the common stock or on any series of preferred stock, other than the senior preferred stock. In addition, FHFA’s regulations relating to conservatorship and receivership operations prohibit us from paying any dividends while in conservatorship unless authorized by the Director of FHFA. The Director of FHFA has directed us to make dividend payments on the senior preferred stock on a quarterly basis for every dividend period for which dividends were payable.
Restrictions Under Senior Preferred Stock Purchase Agreement and Senior Preferred Stock.The senior preferred stock purchase agreement prohibits us from declaring or paying any dividends on Fannie Mae equity securities (other than the senior preferred stock) without the prior written consent of Treasury. In addition, the agreement requires us to comply with the terms of the enterprise regulatory capital framework published by FHFA in November 2020. That requirement, combined with the dividend provisions of the senior preferred stock resultprovide for dividends each quarter through and including the capital reserve end date in 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 is the amount of adjusted total capital necessary for us to meet the capital requirements and buffers set forth in the enterprise regulatory capital framework. The capital reserve end date is defined as the last day of the second consecutive fiscal quarter during which we have had and maintained capital equal to, or in excess of, all of the capital requirements and buffers under the enterprise regulatory capital framework. After the capital reserve end date, the amount of quarterly dividends to Treasury will be equal to the lesser of any quarterly increase in our net income being unavailableworth and a 10% annual rate on the then-current liquidation preference of the senior preferred stock. As a result, our ability to common stockholders.retain earnings in excess of the capital requirements and buffers set forth in the enterprise regulatory capital framework will be limited. For more information on the terms of the senior preferred stock purchase agreement and senior preferred stock, see “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” in our 2020 Form 10-K. For more information on the enterprise regulatory capital framework, see “Business—Legislation and Regulation” in our 20202021 Form 10-K.
Additional Restrictions Relating to Preferred Stock. Payment of dividends on our common stock is also subject to the prior payment of dividends on our preferred stock and our senior preferred stock. Payment of dividends on all outstanding preferred stock, other than the senior preferred stock, is also subject to the prior payment of dividends on the senior preferred stock.
Statutory Restrictions. Under the GSE Act, FHFA has authority to prohibit capital distributions, including payment of dividends, if we fail to meet our capital requirements. If FHFA classifies us as significantly undercapitalized, approval of
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Fannie Mae First Quarter 2021 Form 10-Q | 127 |
the Director of FHFA is required for any dividend payment. Under the Charter Act and the GSE Act, we are not permitted to make a capital distribution if, after making the distribution, we would be undercapitalized. The Director of FHFA, however, may permit us to repurchase shares if the repurchase is made in connection with the issuance of additional shares or obligations in at least an equivalent amount and will reduce our financial obligations or otherwise improve our financial condition.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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| Fannie Mae First Quarter 2022 Form 10-Q | 123 |
Item 6. Exhibits
The exhibits listed below are being filed or furnished with or incorporated by reference into this report.
| | | | | | | | |
| Item | | Description |
| 3.1 | | |
| 3.2 | | |
4.1 | | |
4.2 | | |
10.1 | | |
| 31.1 | | |
| 31.2 | | |
| 32.1 | | |
| 32.2 | | |
| 99.1 | | |
| 101. INS | | Inline XBRL Instance Document* - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| 101. SCH | | Inline XBRL Taxonomy Extension Schema* |
| 101. CAL | | Inline XBRL Taxonomy Extension Calculation* |
| 101. DEF | | Inline XBRL Taxonomy Extension Definition* |
| 101. LAB | | Inline XBRL Taxonomy Extension Label* |
| 101. PRE | | Inline XBRL Taxonomy Extension Presentation* |
| 104 | | Cover Page Interactive Data File* - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded(embedded within the Inline XBRL document included as Exhibit 101document) |
* The financial information contained in these Inline XBRL documents is unaudited.
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Fannie Mae First Quarter 20212022 Form 10-Q | 128124 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Federal National Mortgage Association |
| | |
| By: | /s/ Hugh R. FraterDavid C. Benson |
| | Hugh R. FraterDavid C. Benson
President and Interim Chief Executive Officer |
Date: April 30, 2021May 3, 2022
| | | | | | | | |
| By: | /s/ Celeste M. BrownChryssa C. Halley |
| | Celeste M. Brown
Chryssa C. Halley
Executive Vice President and
Chief Financial Officer
|
Date: April 30, 2021May 3, 2022
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Fannie Mae First Quarter 20212022 Form 10-Q | 129125 |
