FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE [FNMA] Filings

10-Q 1 fnm-20240630.htm 10-Q fnm-20240630

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 June 30, 2024

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

For the transition period from to

Commission file number: 0-50231

Federal National Mortgage Association

(Exact name of registrant as specified in its charter)

Fannie Mae

Federally chartered corporation

52-0883107

1100 15th Street, NW

800

232-6643

Washington,

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:


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.

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 July 12, 2024, there were 1,158,087,567 shares of common stock of the registrant outstanding.


TABLE OF CONTENTS
		Page
PART I—Financial Information		1
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	61
	Condensed Consolidated Statements of Operations and Comprehensive Income	62
	Condensed Consolidated Statements of Cash Flows	63
	Condensed Consolidated Statements of Changes in Equity	64
	Note 1—Summary of Significant Accounting Policies	66
	Note 2—Conservatorship, Senior Preferred Stock Purchase Agreement and Related Matters	67
	Note 3—Consolidations and Transfers of Financial Assets	69
	Note 4—Mortgage Loans	70
	Note 5—Allowance for Loan Losses	84
	Note 6—Investments in Securities	85
	Note 7—Financial Guarantees	87
	Note 8—Short-Term and Long-Term Debt	88
	Note 9—Derivative Instruments	89
	Note 10—Segment Reporting	94
	Note 11—Concentrations of Credit Risk	96
	Note 12—Netting Arrangements	101
	Note 13—Fair Value	102
	Note 14—Commitments and Contingencies	111
	Note 15—Regulatory Capital Requirements	112
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
	About Fannie Mae	1
	Executive Summary	2
	Legislation and Regulation	2
	Key Market Economic Indicators	4
	Consolidated Results of Operations	6
	Consolidated Balance Sheet Analysis	14
	Retained Mortgage Portfolio	15
	Guaranty Book of Business	16
	Business Segments	17
	Single-Family Business	18
	Single-Family Mortgage Market	18
	Single-Family Mortgage-Related Securities Issuances Share	19
	Single-Family Business Metrics	20
	Single-Family Business Financial Results	21
	Single-Family Mortgage Credit Risk Management	22
	Multifamily Business	35
	Multifamily Mortgage Market	35
	Multifamily Business Metrics	36
	Multifamily Business Financial Results	38
	Multifamily Mortgage Credit Risk Management	38
	Consolidated Credit Ratios and Select Credit Information	44
	Liquidity and Capital Management	45

	Risk Management	52

	Market Risk Management, including Interest-Rate Risk Management	52
	Critical Accounting Estimates	54
	Impact of Future Adoption of New Accounting Guidance	57
	Forward-Looking Statements	57
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	114


Fannie Mae Second Quarter 2024 Form 10-Q						i


Item 4.	Controls and Procedures	114
PART II—Other Information		116
Item 1.	Legal Proceedings	116
Item 1A.	Risk Factors	117
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	117
Item 3.	Defaults Upon Senior Securities	119
Item 4.	Mine Safety Disclosures	119
Item 5.	Other Information	119
Item 6.	Exhibits	119


Fannie Mae Second Quarter 2024 Form 10-Q						ii


						MD&A \| About Fannie Mae

PART I—FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in conjunction with our unaudited condensed consolidated financial statements and related notes in this report and the more detailed information in our annual report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”). You can find a “Glossary of Terms Used in This Report” in MD&A in our 2023 Form 10-K.

This report includes forward-looking statements based on management’s current expectations that are subject to significant uncertainties. Future events and our results may differ materially from those reflected in our forward-looking statements due to a variety of factors, including those discussed in “Forward-Looking Statements” and elsewhere in this report and in “Risk Factors” and elsewhere in our 2023 Form 10-K.

About Fannie Mae

Fannie Mae is a leading source of financing for residential mortgages in the United States. We provided $167.6 billion in liquidity to the mortgage market in the first half of 2024, which enabled the financing of approximately 610,000 home purchases, refinancings, and rental units.

We are a government-sponsored, stockholder-owned corporation, chartered by Congress to provide liquidity and stability to the U.S. housing market and to promote access to mortgage credit. We primarily do this by buying residential mortgage loans that are originated by lenders. We place these loans into trusts and issue guaranteed mortgage-backed securities (“MBS” or “Fannie Mae MBS”) that global investors buy from us. We do not originate mortgage loans or lend money directly to borrowers.

We support both single-family and multifamily housing. Our Single-Family business provides financing for properties that have four or fewer residential units. Our Multifamily business provides financing for residential buildings with five or more units. As of March 31, 2024 (the latest date for which information is available), Fannie Mae owned or guaranteed an estimated 1 in 4 single-family mortgage loans in the United States and an estimated 21% of multifamily mortgage debt outstanding in the United States.

We provide a guaranty on the MBS that we issue. If a borrower fails to make a payment on a mortgage loan that is included in a Fannie Mae MBS, we pay the shortfall amount to the MBS investor. In exchange for providing this guaranty, we receive a guaranty fee. Guaranty fees are the primary source of our revenues.

Because we assume the credit risk for mortgage loans in our MBS, our earnings are affected by the credit performance of these loans. Credit risk management is therefore key to our business and financial results. To help manage our mortgage credit risk exposure, and in response to capital requirements, we transfer some of our credit risk exposure to third parties through credit risk transfer transactions and mortgage insurance. For a discussion of how we manage credit risk, see “MD&A—Single-Family Business—Single-Family Mortgage Credit Risk Management” and “MD&A—Multifamily Business—Multifamily Mortgage Credit Risk Management” in this report and in our 2023 Form 10-K.

We are in conservatorship, with the Federal Housing Finance Agency (“FHFA”) as our conservator. During conservatorship, our Board has no fiduciary duties to the company or its stockholders, as they owe their fiduciary duties of care and loyalty solely to FHFA as conservator. Conservatorship and our agreements with the U.S. Department of the Treasury (“Treasury”) significantly restrict our business activities and stockholder rights. For more information about the impact of conservatorship and these agreements on our business, stockholders, and our uncertain future, see “Business—Conservatorship and Treasury Agreements” and “Risk Factors—GSE and Conservatorship Risk” in our 2023 Form 10-K.


Fannie Mae Second Quarter 2024 Form 10-Q						1


			MD&A \| Executive Summary

Executive Summary

Please read this summary together with our MD&A, our condensed consolidated financial statements as of June 30, 2024 and the accompanying notes.

Overview of Financial Results

Summary of Financial Results

Quarterly Results

•Net revenues increased $231 million in the second quarter of 2024 compared with the second quarter of 2023.

•Net income decreased $510 million in the second quarter of 2024 compared with the second quarter of 2023, primarily driven by a decrease in benefit for credit losses on single-family mortgage loans partially offset by an increase in net interest income.

Year-to-Date Results

•Net revenues increased $477 million in the first half of 2024 compared with the first half of 2023.

•Net income increased $38 million in the first half of 2024 compared with the first half of 2023, primarily driven by an increase in net interest income and an increase in fair value gains, partially offset by a decrease in benefit for credit losses on single-family mortgage loans.

•Net worth increased to $86.5 billion as of June 30, 2024 from $77.7 billion as of December 31, 2023.

For more information on the drivers of our financial results, see “Consolidated Results of Operations.”

Legislation and Regulation

The information in this section updates and supplements information regarding legislative, regulatory, conservatorship and other matters affecting our business set forth in “Business—Conservatorship and Treasury Agreements” and “Business—Legislation and Regulation” in our 2023 Form 10-K, as well as in “MD&A—Legislation and Regulation” in our Form 10-Q for the quarter ended March 31, 2024 (“First Quarter 2024 Form 10-Q”). Also see “Risk Factors” in our 2023 Form 10-K for discussions of risks relating to legislative and regulatory matters.

Multifamily Tenant Protections

In July 2024, FHFA established a new tenant protection policy that will be applicable to multifamily properties financed with mortgages backed by Fannie Mae and Freddie Mac. Under the policy, beginning February 28, 2025, covered multifamily borrowers who receive financing from Fannie Mae or Freddie Mac will be required to provide tenants: (1) a 30-day notice of a rent increase, (2) a 30-day notice of a lease term’s expiration, and (3) a minimum 5-day grace period for late rent payments.


Fannie Mae Second Quarter 2024 Form 10-Q						2


			MD&A \| Legislation and Regulation

Quality Control Standards for Automated Valuation Models Final Rule

In July 2024, FHFA and five other federal regulatory agencies issued a final rule to implement the quality control standards mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act for the use of automated valuation models (referred to as “AVMs”) by mortgage originators and secondary market issuers in determining the collateral worth of a mortgage secured by a consumer’s principal dwelling. Under the final rule, institutions that engage in certain credit decisions or securitization determinations must adopt policies, practices, procedures and control systems to: ensure that AVMs used in these transactions to determine the value of mortgage collateral adhere to quality control standards designed to ensure a high level of confidence in the estimates produced by AVMs; protect against the manipulation of data; seek to avoid conflicts of interest; require random sample testing and reviews; and comply with applicable nondiscrimination laws. The rule will become effective on the first day of the calendar quarter following the date that is 12 months after the date the rule is published in the Federal Register.


Fannie Mae Second Quarter 2024 Form 10-Q						3


			MD&A \| Key Market Economic Indicators

Key Market Economic Indicators

In “MD&A—Key Market Economic Indicators” in our 2023 Form 10-K, we discuss how varying macroeconomic conditions can influence our financial results across different business and economic environments, and we provide forecasts and expectations with respect to some of these macroeconomic conditions. Below we provide an update to these forecasts and expectations, as well as updates to certain macroeconomic information. Our forecasts and expectations are based on many assumptions, subject to many uncertainties and may change, perhaps substantially, from our current forecasts and expectations. See “Risk Factors” in our 2023 Form 10-K and “Forward-Looking Statements” in this report for a discussion of factors that could cause actual results to differ materially from our current forecasts and expectations.

Interest Rates

Selected Benchmark Interest Rates

(1)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.

The average 30-year fixed-rate mortgage rate at the end of the second quarter of 2024 increased slightly compared to the end of the first quarter of 2024 and the end of the fourth quarter of 2023.

Home Prices

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-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 growth rates represent estimates based on non-seasonally adjusted preliminary data and are subject to change as additional data becomes available.

Home prices on a national basis grew by an estimated 5.2% in the first half of 2024. We forecast national home price growth of 6.1% for the full year of 2024. We expect regional variation in the timing and rate of home price changes.


Fannie Mae Second Quarter 2024 Form 10-Q						4


			MD&A \| Key Market Economic Indicators

Housing Activity

New Housing Starts(1)

(1)According to the U.S. Census Bureau and subject to revision.

Single-family housing starts decreased modestly in the second quarter of 2024 compared to the first quarter of 2024. We expect single-family housing starts to increase in 2024 overall compared to 2023 due to elevated demand for new single-family housing.

For further discussion on housing activity, see “Single-Family Business—Single-Family Mortgage Market” and “Multifamily Business—Multifamily Mortgage Market.”

Economic Activity

GDP and Unemployment Rate

(1)Real GDP growth (decline) is based on the quarterly series calculated by the Bureau of Economic Analysis and is subject to revision.

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

U.S. gross domestic product (“GDP”) increased in the first half of 2024. We expect that GDP will continue to grow in the second half of 2024, but at a slower pace than in 2023. The unemployment rate increased in the first half of 2024, and we expect it to continue to increase modestly in the second half of 2024. We expect our economic outlook will be influenced by a number of factors that are subject to change, such as the persistence of inflationary pressures, changes in monetary policy and the risk of financial market disruptions.

See “Risk Factors—Market and Industry Risk” and “Risk Factors—Credit Risk” in our 2023 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.


Fannie Mae Second Quarter 2024 Form 10-Q						5


			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
	For the Three Months Ended June 30,						For the Six Months Ended June 30,

	2024		2023		Variance		2024		2023		Variance
	(Dollars in millions)
Net interest income	$	7,268	$	7,035	$	233	$	14,291	$	13,821	$	470
Fee and other income(1)	68		70		(2)		140		133		7
Net revenues	7,336		7,105		231		14,431		13,954		477
Investment gains (losses), net	(62)		25		(87)		(40)		(42)		2
Fair value gains (losses), net	447		404		43		927		608		319
Administrative expenses	(939)		(864)		(75)		(1,868)		(1,732)		(136)
Benefit (provision) for credit losses	300		1,266		(966)		480		1,134		(654)
TCCA fees(2)	(859)		(856)		(3)		(1,719)		(1,711)		(8)
Credit enhancement expense(3)	(405)		(384)		(21)		(824)		(725)		(99)
Change in expected credit enhancement recoveries(4)	37		(160)		197		100		(40)		140
Other expenses, net(5)	(251)		(257)		6		(450)		(387)		(63)
Income before federal income taxes	5,604		6,279		(675)		11,037		11,059		(22)
Provision for federal income taxes	(1,120)		(1,285)		165		(2,233)		(2,293)		60
Net income	$	4,484	$	4,994	$	(510)	$	8,804	$	8,766	$	38
Total comprehensive income	$	4,477	$	4,995	$	(518)	$	8,801	$	8,767	$	34

(1)Single-family fee and other income consists primarily of compensation for engaging in structured transactions and providing other lender services. Multifamily fee and other income consists of fees associated with certain Multifamily business activities such as credit enhancements for tax-exempt multifamily housing revenue bonds.

(2)TCCA fees refers to the expense recognized as a result of the 10 basis point increase in guaranty fees on all single-family 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 Infrastructure Investment and Jobs Act, which we pay to Treasury.

(3)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 and certain lender risk-sharing programs.

(4)Includes estimated changes in benefits, as well as any realized amounts, from our freestanding credit enhancements.

(5)Includes debt extinguishment gains and losses, expenses associated with legal claims, foreclosed property income (expense), gains and losses from partnership investments, housing trust fund expenses, loan subservicing costs, and servicer fees paid in connection with certain loss mitigation activities.

Net Interest Income

Overview

Our primary source of net interest income is guaranty fees we receive for assuming the credit risk on mortgage loans underlying Fannie Mae MBS held by third parties in our guaranty book of business. We also recognize net interest income on the difference between interest income earned on the assets in our retained mortgage portfolio and our corporate liquidity portfolio (collectively, our “portfolios”) and the interest expense associated with our funding debt. In addition, income or expense from hedge accounting is a component of our net interest income. See “MD&A—Consolidated Results of Operations—Net Interest Income” in our 2023 Form 10-K for a description of the components of our single-family and multifamily guaranty fees and the components of our net interest income from our guaranty book of business, portfolios, and hedge accounting.


Fannie Mae Second Quarter 2024 Form 10-Q						6


			MD&A \| Consolidated Results of Operations

Components of Net Interest Income

The table below displays the components of our net interest income from our guaranty book of business, from our portfolios, as well as from hedge accounting.


Components of Net Interest Income
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2024		2023		Variance		2024		2023		Variance
	(Dollars in millions)
Net interest income from guaranty book of business:
Base guaranty fee income(1)	$	4,108	$	4,025	$	83	$	8,198	$	8,017	$	181
Base guaranty fee income related to TCCA(2)	859		856		3		1,719		1,711		8
Net deferred guaranty fee income(3)	867		888		(21)		1,644		1,669		(25)
Total net interest income from guaranty book of business	5,834		5,769		65		11,561		11,397		164
Net interest income from portfolios(4)	1,646		1,568		78		3,193		2,958		235
Income (expense) from hedge accounting(5)	(212)		(302)		90		(463)		(534)		71
Total net interest income	$	7,268	$	7,035	$	233	$	14,291	$	13,821	$	470

(1)Excludes revenues generated by the 10 basis point guaranty fee increase we implemented pursuant to the TCCA, the incremental revenue from which is paid 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 paid to Treasury and not retained by us.

(3)Excludes the amortization of cost basis adjustments resulting from hedge accounting, which is included in income (expense) from hedge accounting.

(4)Includes interest income from assets held in our retained mortgage portfolio and our corporate liquidity portfolio, as well as other assets used to support lender liquidity. Also includes interest expense on our funding debt, including outstanding CAS debt.

(5)For more information about our hedge accounting program, see “Note 9, Derivative Instruments.”

Net interest income increased in the second quarter of 2024 compared with the second quarter of 2023, primarily as a result of lower expense from hedge accounting, higher base guaranty fee income and higher net interest income from portfolios.

•Lower expense from hedge accounting. We had lower expense from hedge accounting in the second quarter of 2024 compared with the second quarter of 2023, primarily driven by lower interest expense on derivatives in hedging relationships in the second quarter of 2024 than in the second quarter of 2023.

•Higher base guaranty fee income. Higher average charged guaranty fees on our single-family guaranty book of business was the primary driver of the increase in base guaranty fee income in the second quarter of 2024 compared with the second quarter of 2023.

•Higher net interest income from portfolios. Higher net interest income from portfolios in the second quarter of 2024 compared with the second quarter of 2023 was primarily driven by higher interest rates in the second quarter of 2024 than in the second quarter of 2023 on securities in our corporate liquidity portfolio, primarily securities purchased under agreements to resell. See “Liquidity and Capital Management—Liquidity Management—Corporate Liquidity Portfolio” for more information about our corporate liquidity portfolio.

Net interest income increased in the first half of 2024 compared with the first half of 2023, primarily as a result of higher net interest income from portfolios and higher base guaranty fee income.

•Higher net interest income from portfolios. Higher net interest income from portfolios in the first half of 2024 compared with the first half of 2023 was primarily driven by slightly higher interest rates in the first half of 2024 than in the first half of 2023 on securities in our corporate liquidity portfolio, primarily securities purchased under agreements to resell. This was partially offset by higher interest expense on funding debt, also as a result of higher interest rates.

•Higher base guaranty fee income. Higher average charged guaranty fees on our single-family guaranty book of business was the primary driver of the increase in base guaranty fee income in the first half of 2024 compared with the first half of 2023.


Fannie Mae Second Quarter 2024 Form 10-Q						7


			MD&A \| Consolidated Results of Operations

Analysis of Unamortized Deferred Guaranty Fees

The following charts present information about the interest rates of the loans in our single-family conventional guaranty book of business as well as information about our deferred guaranty fees.

As shown in the chart below (on the left), nearly all of our single-family conventional guaranty book of business as of June 30, 2024 had an interest rate lower than the average 30-year fixed-rate mortgage rate. Per Freddie Mac’s Primary Mortgage Market Survey®, as of June 27, 2024, the U.S. weekly average interest rate for a single-family 30-year fixed-rate mortgage was 6.86%. Accordingly, even if interest rates decline meaningfully, most of the borrowers whose mortgage loans are in our single-family conventional guaranty book of business still would not be incentivized to refinance.

The other chart below (on the right) presents guaranty fees that will be amortized into deferred guaranty fee income in future periods, which we refer to as “unamortized deferred guaranty fees,” as described in “MD&A—Consolidated Results of Operations—Net Interest Income—Analysis of Unamortized Deferred Guaranty Fees” in our 2023 Form 10-K.


Interest Rates of Single-Family Conventional Guaranty Book of Business Compared with Average 30-Year Fixed-Rate Mortgage Rate			Unamortized Deferred Guaranty Fees(1)
As of June 30, 2024			(Dollars in billions)


—	Represents the average 30-year fixed-rate mortgage rate as of June 27, 2024, according to Freddie Mac’s Primary Mortgage Market Survey®, the last published rate for the quarter ending June 30, 2024.	(1)	Represents the net unamortized cost basis adjustments (consisting of premiums and discounts on single-family and multifamily mortgage loans and debt of consolidated trusts) that will be recognized through deferred guaranty fee income over the remaining contractual life of the mortgage loans or debt. Although we are in a net premium position for both mortgage loans and debt of consolidated trusts, we have a greater amount of premiums with respect to debt of consolidated trusts. Primarily as a result of the upfront fees we charge, the net amortization of these cost basis adjustments will result in income.

—	Represents the percentage of single-family conventional guaranty book of business by select interest rate band based on the current interest rate of the mortgage loans.


Fannie Mae Second Quarter 2024 Form 10-Q						8


			MD&A \| Consolidated Results of Operations

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.


Analysis of Net Interest Income and Yield(1)
	For the Three Months Ended June 30,
	2024						2023
	Average Balance		Interest Income/ (Expense)		Average Rates Earned/Paid		Average Balance		Interest Income/ (Expense)		Average Rates Earned/Paid
	(Dollars in millions)
Interest-earning assets:
Cash and cash equivalents(2)	$	46,802	$	633	5.41	%	$	63,956	$	807	5.05	%
Securities purchased under agreements to resell	50,898		693		5.45		41,131		524		5.10
Investments in securities(3)	51,974		282		2.17		53,965		294		2.18
Mortgage loans:
Mortgage loans of Fannie Mae	50,041		568		4.54		51,961		611		4.70
Mortgage loans of consolidated trusts	4,086,295		35,049		3.43		4,075,543		32,044		3.15
Total mortgage loans(4)	4,136,336		35,617		3.44		4,127,504		32,655		3.16
Advances to lenders	2,962		50		6.75		3,798		60		6.32
Total interest-earning assets	$	4,288,972	$	37,275	3.48	%	$	4,290,354	$	34,340	3.20	%
Interest-bearing liabilities:
Short-term funding debt	$	9,996	$	(130)	5.20	%	$	14,841	$	(183)	4.93	%
Long-term funding debt	101,671		(921)		3.62		119,572		(936)		3.13
CAS debt	2,431		(69)		11.35		4,319		(109)		10.09
Total debt of Fannie Mae	114,098		(1,120)		3.93		138,732		(1,228)		3.54
Debt securities of consolidated trusts held by third parties	4,083,048		(28,887)		2.83		4,078,979		(26,077)		2.56
Total interest-bearing liabilities	$	4,197,146	$	(30,007)	2.86	%	$	4,217,711	$	(27,305)	2.59	%
Net interest income/net interest yield			$	7,268	0.68	%			$	7,035	0.66	%


Fannie Mae Second Quarter 2024 Form 10-Q						9


			MD&A \| Consolidated Results of Operations


	For the Six Months Ended June 30,
	2024						2023
	Average Balance		Interest Income/ (Expense)		Average Rates Earned/Paid		Average Balance		Interest Income/ (Expense)		Average Rates Earned/Paid
	(Dollars in millions)
Interest-earning assets:
Cash and cash equivalents(2)	$	46,408	$	1,254	5.40	%	$	62,780	$	1,504	4.79	%
Securities purchased under agreements to resell	48,240		1,315		5.45		38,951		942		4.81
Investments in securities(3)	52,930		582		2.20		54,102		578		2.14
Mortgage loans:
Mortgage loans of Fannie Mae	50,396		1,135		4.50		52,251		1,218		4.66
Mortgage loans of consolidated trusts	4,089,520		69,698		3.41		4,074,813		63,574		3.12
Total mortgage loans(4)	4,139,916		70,833		3.42		4,127,064		64,792		3.14
Advances to lenders	2,658		89		6.70		3,082		94		6.07
Total interest-earning assets	$	4,290,152	$	74,073	3.45	%	$	4,285,979	$	67,910	3.17	%
Interest-bearing liabilities:
Short-term funding debt	$	12,496	$	(325)	5.20	%	$	12,733	$	(302)	4.72	%
Long-term funding debt	102,213		(1,840)		3.60		119,016		(1,744)		2.93
CAS debt	2,536		(143)		11.28		4,727		(232)		9.82
Total debt of Fannie Mae	117,245		(2,308)		3.94		136,476		(2,278)		3.34
Debt securities of consolidated trusts held by third parties	4,085,866		(57,474)		2.81		4,078,066		(51,811)		2.54
Total interest-bearing liabilities	$	4,203,111	$	(59,782)	2.84	%	$	4,214,542	$	(54,089)	2.57	%
Net interest income/net interest yield			$	14,291	0.67	%			$	13,821	0.64	%

(1) Includes the effects of discounts, premiums and other cost basis adjustments, including basis adjustments related to hedge accounting.

(2) Prior to March 31, 2024, “Cash and cash equivalents” were previously reported within “Investments in securities.” Prior periods have been updated to conform to the current period presentation. Cash equivalents are composed of overnight reverse repurchase agreements and U.S. Treasuries, if any, that have a maturity at the date of acquisition of three months or less.

(3) Consists of U.S. Treasuries not classified as cash equivalents and mortgage-related securities.

(4) Average balance includes mortgage loans on nonaccrual status. Interest income includes loan fees of $699 million and $1.4 billion, respectively, for the second quarter of 2024 and first half of 2024, compared with $746 million and $1.4 billion, respectively, for the second quarter of 2023 and first half of 2023. Loan fees primarily consist of yield maintenance revenue we recognized on the prepayment of multifamily mortgage loans and the amortization of upfront cash fees exchanged when we acquire the mortgage loan.


Fannie Mae Second Quarter 2024 Form 10-Q						10


			MD&A \| Consolidated Results of Operations

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.

The table below displays the components of our fair value gains and losses.


Fair Value Gains (Losses), Net
	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2024		2023		2024		2023
	(Dollars in millions)
Risk management derivatives fair value gains (losses) attributable to:
Net contractual interest income (expense) on interest-rate swaps(1)	$	(288)	$	(394)	$	(588)	$	(775)
Net change in fair value during the period	396		505		1,029		692


Impact of hedge accounting(2)	109		637		256		622
Risk management derivatives fair value gains (losses), net	217		748		697		539
Mortgage commitment derivatives fair value gains (losses), net	94		198		301		84
Credit enhancement derivatives fair value gains (losses), net	1		29		(14)		14
Total derivatives fair value gains (losses), net	312		975		984		637
Trading securities gains (losses), net	121		(723)		(140)		23
Long-term debt fair value gains (losses), net	17		219		128		(50)
Other, net(3)	(3)		(67)		(45)		(2)
Fair value gains (losses), net	$	447	$	404	$	927	$	608

(1)“Net contractual interest income (expense) on interest-rate swaps” is primarily impacted by changes in interest rates and changes in the composition of our interest-rate swaps portfolio.

(2)The “Impact of hedge accounting” reflected in this table shows the net gain or loss from swaps in hedging relationships plus any accrued interest during the applicable periods that are recognized in “Net interest income.”

(3)Consists primarily of fair value gains and losses on mortgage loans held at fair value.

Fair value gains, net in the second quarter and first half of 2024 were primarily driven by rising interest rates, which drove gains on risk management derivatives and mortgage commitment derivatives. Also contributing to fair value gains, net in the second quarter of 2024 were fair value gains on trading securities, which were primarily driven by our holdings of U.S. Treasury securities moving closer to maturity, which resulted in the reversal of previously recognized fair value losses.

Fair value gains, net in the second quarter of 2023 were primarily driven by gains on:

•risk management derivatives due to rising interest rates; and

•long-term debt of consolidated trusts held at fair value due to rising interest rates and widening of the secondary spread, which is the spread between the 30-year MBS current coupon yield and 10-year U.S. Treasury rate.

These gains were partially offset by losses on trading securities, primarily driven by rising interest rates, which resulted in losses on fixed-rate securities as prices fell.

Fair value gains, net in the first half of 2023 were primarily driven by rising interest rates, which drove gains on risk management derivatives.


Fannie Mae Second Quarter 2024 Form 10-Q						11


			MD&A \| Consolidated Results of Operations

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. Many of the drivers that contribute to our benefit or provision for credit losses overlap or are interdependent. The components shown below are based on internal allocation estimates. The benefit or provision for credit losses includes our benefit or provision for loan losses, accrued interest receivable losses, our guaranty loss reserves, and credit losses on our available-for-sale (“AFS”) debt securities. For purposes of this attribution table, credit losses on AFS securities are excluded.


Components of Benefit (Provision) for Credit Losses and Change in Expected Credit Enhancement Recoveries
	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2024		2023		2024		2023
	(Dollars in millions)
Single-family benefit (provision) for credit losses:
Changes in loan activity(1)	$	(205)	$	(390)	$	(441)	$	(740)
Redesignation of loans from held for investment (“HFI”) to held for sale (“HFS”)	(14)		—		(35)		—
Actual and forecasted home prices	606		1,724		1,326		2,104
Actual and projected interest rates	(56)		(146)		(233)		(24)
Other(2)	217		230		266		125
Single-family benefit (provision) for credit losses	548		1,418		883		1,465
Multifamily benefit (provision) for credit losses:
Changes in loan activity(1)	(100)		(74)		(166)		(84)
Actual and projected interest rates	(37)		(65)		(101)		8
Actual and projected economic data(3)	(154)		(121)		(71)		(303)
Other	43		108		(65)		48
Multifamily benefit (provision) for credit losses	(248)		(152)		(403)		(331)
Total benefit (provision) for credit losses	$	300	$	1,266	$	480	$	1,134

Change in expected credit enhancement recoveries:(4)
Single-family	$	(47)	$	(223)	$	(89)	$	(128)
Multifamily	84		63		189		88
Change in expected credit enhancement recoveries	$	37	$	(160)	$	100	$	(40)

(1)Primarily consists of loan acquisitions, liquidations, changes in loan delinquencies and write-offs of 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.

(2)Includes provision for allowance on accrued interest receivable and impacts of model enhancements. Also includes any benefit or provision for our guaranty loss reserves that are not separately included in the other components. Beginning with the period ended March 31, 2024, also includes the release of economic concessions related to loans previously designated as troubled debt restructurings (“TDRs”) that received loss mitigation arrangements during the period. Prior periods have been updated to conform to the current period presentation.

(3)Primarily consists of changes attributed to projected property net operating income, actual and projected property values, and labor market forecasts.

(4)Beginning with the period ended December 31, 2023, “Change in expected credit enhancement recoveries” as presented in this table includes activity associated with both active and inactive loans. Previously, this presentation only included active loans. Prior periods have been updated to conform to the current period presentation.


Fannie Mae Second Quarter 2024 Form 10-Q						12


			MD&A \| Consolidated Results of Operations

Single-Family Benefit (Provision) for Credit Losses

Our single-family benefit for credit losses in the second quarter and first half of 2024 was primarily driven by a benefit from actual and forecasted home price growth, partially offset by a provision from changes in loan activity, as described below:

•Benefit from actual and forecasted home price growth. During the second quarter and first half of 2024, actual home prices appreciated more than originally projected and our forecast of future home prices also improved. Higher home prices decrease the likelihood that loans will default and reduce the amount of losses 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” in our 2023 Form 10-K for additional information about how home prices affect our credit loss estimates. See “Key Market Economic Indicators” in this report for a discussion of home price growth and our home price forecast. Also see “Critical Accounting Estimates” in this report for more information about our home price forecast.

•Provision from changes in loan activity. This includes provision on newly acquired loans and was primarily driven by the credit risk profile of our single-family acquisitions for the second quarter and first half of 2024, which primarily consisted of purchase loans. Purchase loans generally have higher origination loan-to-value (“LTV”) ratios than refinance loans; therefore, purchase loans have a higher estimated risk of default and loss severity in the allowance than refinance loans and a correspondingly higher credit loss provision at the time of acquisition.

Our single-family benefit for credit losses in the second quarter of 2023 and first half of 2023 was primarily driven by a benefit from actual and forecasted home price growth, partially offset by a provision from changes in loan activity, as described in more detail below:

•Benefit from actual and forecasted home price growth. During the second quarter and first half of 2023, we observed strong actual home price appreciation. In addition, our updated 2023 home price forecast changed from our prior estimate, resulting in a shift to positive home price appreciation for the year.

Multifamily Benefit (Provision) for Credit Losses

Our multifamily provision for credit losses in the second quarter of 2024 was primarily driven by continued declines in estimated actual and near-term projected multifamily property values and the impact of new 30-day loan delinquencies in our multifamily guaranty book of business, including provision attributable to a portfolio of approximately $600 million of adjustable-rate conventional loans that we anticipate will become seriously delinquent in the near term.

Our multifamily provision for credit losses in the first half of 2024 was primarily driven by declines in estimated actual and near-term projected multifamily property values, the impact of new 30-day loan delinquencies in our multifamily guaranty book of business, and increases in actual and projected interest rates. Provision related to estimated actual and near-term projected multifamily property values, along with the impact of offsetting factors, is presented in “actual and projected economic data” in the table above. Provision related to changes in loan delinquencies is presented in “changes in loan activity” in the table above.

Our multifamily provision for credit losses for the second quarter and first half of 2023 was primarily driven by decreases in estimated multifamily property values. This resulted in higher estimated LTV ratios on the loans in our multifamily guaranty book of business, which increased our estimate of expected credit losses on these loans. This provision is included in the “actual and projected economic data” line item in the table above.


Fannie Mae Second Quarter 2024 Form 10-Q						13


			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

As of

June 30, 2024

December 31, 2023

Variance

(Dollars in millions)

Assets

FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE [FNMA] Filings
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