Fannie Mae is a leading source of financing for mortgages in the United States, with $4.3 trillion in assets as of March 31,June 30, 2022. Organized as a government-sponsored entity, Fannie Mae is a shareholder-owned corporation. Our charter is an act of Congress, which establishes that our 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 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. 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 depends on the rates at which loans in our book of business turn over and new loans are added.

We expect lower amortization income in 2022 compared with 2021, driven by reduced refinancing activity.activity due to a higher mortgage interest-rate environment in 2022. In addition, we expect a shift frommodest credit-related expense in 2022 compared with significant credit-related income in 2021 to modest credit-related expense in 2022.2021. We expect those factors to 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 other macroeconomic factors can affect our financial results.

We continued our commitment to green financing in the first quarterhalf of 2022, issuing a total of $2.8$5.2 billion in multifamily green MBS, $371$767 million in single-family green MBS, and $781 million in multifamily green resecuritizations. We also issued $2.2$4.7 billion in multifamily social MBS and $381 million in multifamily social resecuritizations in the first quarterhalf of 2022. These green and social bonds 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. 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 2021 Form 10-K.

We are focusing in this initial plan on the needs of Black homeowners and renters, a population for whom inequities caused by past discriminatory housing practices are particularly profound. While our solutions seek to address the effects of discrimination against Black homeowners and renters, we expect they will benefit borrowers and renters in all populations. In the future, we expect to expand the focus of our equitable housing efforts to address challenges faced by other populations who have been historically underserved by the housing finance system, including Latino homeowners and renters.

On December 17, 2020, FHFA published a final rule to establish the enterprise regulatory capital framework for Fannie Mae and Freddie Mac. On March 16,In June 2022, FHFA published a final rule amending the enterprise regulatory capital framework to refine both the prescribed leverage buffer amountby introducing new public disclosure requirements. The requirements include quarterly quantitative and the risk-based capital treatment of credit risk transfer transactions. Specifically, the final rule published in March 2022:

of our availablerelated to risk management, corporate governance, capital (deficit) to this requirement. For more information regarding ourstructure, and capital requirements and buffers 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-Focused Matters—Capital—framework’s standardized approach. We expect to provide our first reporting under the rule, based on data as of December 31, 2022, in February 2023.

AlthoughIn June 2022, FHFA has amended the enterprise regulatory capital framework, our senior preferred stock purchase agreement with Treasury currently includespublished a covenantfinal rule that requires us to complysubmit annual capital plans to FHFA and provide prior notice for certain capital actions. The rule also incorporates the determination of the stress capital buffer into the capital planning process.

On June 22, 2022, Sandra L. Thompson was sworn in as publishedthe Director of FHFA, following confirmation of her appointment by the Senate in May. Director Thompson had been the Acting Director of FHFA in December 2020, disregarding any subsequent amendments or modifications. The enterprise regulatory capital framework requires that we provide our initial quarterly capital reports to FHFA by May 30,since June 2021.

On July 19, 2022, and that we publicly report our calculationsthe Board of regulatory capital levels, buffers, adjusted total assets, and total risk-weighted assets under the standardized approachGovernors of the framework. FHFA has instructed us to report our capital requirements underFederal Reserve System (the “Federal Reserve”) published proposed regulations that provide default rules for certain contracts that use LIBOR as the amended enterprise regulatory capital framework, not under the original requirements of the framework published in December 2020. Accordingly, we do not expect to be in compliance with the 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.

The LIBOR Act provides thatreplacement benchmark rates identified by the Federal Reserve must identify a replacement benchmarkin the proposal are based on the Secured Overnight Financing Rate (“SOFR”) and will include an appropriate “tenor spread adjustment”adjustments” to reflect historical spreads between LIBOR and SOFR. The LIBOR Act alsoproposal provides for separate replacement benchmark rates for derivatives transactions, consumer loans, contracts where a government-sponsored entity is a party, and all other affected

The LIBOR Act establishes a safe harbor for market 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 reducesand the proposed rule, if adopted as proposed, reduce the risks to us associated with the approaching cessation of LIBOR.

Below we discuss how varying macroeconomic conditions can influence our financial results across different business and economic environments. Our forecasts and expectations are based on many assumptions, subject to many uncertainties 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.”

See “Risk Factors” in this report and “Risk Factors—Market and Industry Risk” in our 2021 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.

This section discusses our condensed consolidated results of operations and should be read together with our condensed consolidated financial statements and the accompanying notes.

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:

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 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.

We recognize fair value changes attributable to movements in benchmark interest rates for mortgage loans and funding debt, and for related interest-rate swaps in hedging relationships, as a component of net interest income, including the amortization of hedge-related basis adjustments on mortgage loans or funding debt and any related interest accrual on the swaps. The income or expense associated with this activity is presented in the “Income from hedge accounting” 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.

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.

Net interest income decreased in the second quarter of 2022 compared with the second quarter of 2021, primarily as a result of lower net amortization income, partially offset by higher base guaranty fee income and higher income from portfolios. Net interest income increased in the first quarterhalf of 2022 compared with the first quarterhalf of 2021, driven byprimarily as a result of higher base guaranty fee income and higher income from portfolios, partially offset by lower net amortization income.

We expect refinancing activity to be significantly lower throughout 2022 compared with 2021 levels as we expect interest rates to remain elevated throughout 2022, resulting in fewer borrowers who may benefit from refinancing. As a result, we expect lower amortization income in 2022 compared with 2021.

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.

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 below in “Impact of Hedge Accounting on Fair Value Gains (Losses), Net,” we apply fair value hedge accounting to reduce earnings volatility in our financial statements driven by changes in interest rates. Accordingly, we 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.

The table below displays the components of our fair value gains and losses, which includes the impact of hedge accounting.

These gains were partially offset by fair value losses in the second quarter and first quarterhalf 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 quarterhalf of 2021 were primarily driven by:

These gains were partially offset by fair value losses in the first quarterhalf of 2021 on trading securities, primarily driven by increases in U.S. Treasury yieldsinterest rates during the period,first quarter of 2021, which resulted in losses on fixed-rate securities held in our other investments portfolio.

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 gains and losses related to designated interest-rate swaps in qualifying hedging relationships that are recognized in “Net interest income” rather than “Fair value gains (losses), net” as a result of hedge accounting. Derivatives not in hedging relationships are not affected.

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 effectiveness 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”)TDR accounting and no longer measure the economic concession for restructurings occurring on or after the adoption date. This accounting will also resultresults 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. AsAlthough increases in interest rates were a result,meaningful driver of our credit-related expense in the first half of 2022, we expect the decrease in the balance of loans that were previously designated as TDRs will reduce the sensitivity of our credit-related income (expense) to interest rate volatility over time. 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.