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Entity information	6 Months Ended
Jun. 30, 2011 shares
Entity Information
Entity registrant name	FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE
Entity central index key	0000310522
Entity current reporting status	Yes
Entity voluntary filers	No
Current fiscal year end date	--12-31
Entity filer category	Accelerated Filer
Entity well known seasoned issuer	Yes
Entity common stock shares outstanding	1,158,237,382

Document information	6 Months Ended
Jun. 30, 2011
Document Information
Document type	10-Q
Document period end date	Jun. 30, 2011
Amendment flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2011	Dec. 31, 2010
Assets:
Cash and cash equivalents (includes $3 and $348, respectively, related to consolidated trusts)	$ 14,274	$ 17,297
Restricted cash (includes $33,136 and $59,619, respectively, related to consolidated trusts)	37,579	63,678
Federal funds sold and securities purchased under agreements to resell or similar arrangements	19,500	11,751
Investments in securities:
Trading, at fair value (includes $21 as of both periods related to consolidated trusts)	61,907	56,856
Available-for-sale, at fair value (includes $1,590 and $1,055, respectively, related to consolidated trusts)	86,616	94,392
Total investments in securities	148,523	151,248
Mortgage loans:
Loans held for sale, at lower of cost or fair value (includes $73 and $661, respectively, related to consolidated trusts)	439	915
Loans held for investment, at amortized cost (includes $3,084 and $2,962, respectively, at fair value and loans pledged as collateral that may be sold or repledged of $460 and $2,522, respectively, related to consolidated trusts)	2,996,896	2,984,361
Allowance for loan losses	(69,506)	(61,556)
Total loans held for investment, net of allowance	2,927,390	2,922,805
Total mortgage loans	2,927,829	2,923,720
Accrued interest receivable, net (includes $8,683 and $8,910, respectively, related to consolidated trusts)	10,681	11,279
Acquired property, net	13,592	16,173
Other assets (includes $59 and $593, respectively, related to consolidated trusts)	24,134	26,826
Total assets	3,196,112	3,221,972
Liabilities:
Accrued interest payable (includes $9,584 and $9,712, respectively, related to consolidated trusts)	13,289	13,764
Federal funds purchased and securities sold under agreements to repurchase		52
Other liabilities (includes $707 and $893, respectively, related to consolidated trusts)	13,065	13,673
Total liabilities	$ 3,201,199	$ 3,224,489
Commitments and contingencies (Note 14)
Fannie Mae stockholders' equity (deficit):
Senior preferred stock, 1,000,000 shares issued and outstanding	$ 99,700	$ 88,600
Preferred stock, 700,000,000 shares are authorized - 555,374,922 and 576,868,139 shares issued and outstanding, respectively	19,130	20,204
Common stock, no par value, no maximum authorization - 1,308,762,703 and 1,270,092,708 shares issued, respectively; 1,157,750,434 and 1,118,504,194 shares outstanding, respectively	687	667
Accumulated deficit	(115,784)	(102,986)
Accumulated other comprehensive loss	(1,499)	(1,682)
Treasury stock, at cost, 151,012,269 and 151,588,514 shares, respectively	(7,402)	(7,402)
Total Fannie Mae stockholders' deficit	(5,168)	(2,599)
Noncontrolling interest	81	82
Total deficit	(5,087)	(2,517)
Total liabilities and equity (deficit)	3,196,112	3,221,972
Of Fannie Mae [Member]
Mortgage loans:
Loans held for investment, at amortized cost (includes $3,084 and $2,962, respectively, at fair value and loans pledged as collateral that may be sold or repledged of $460 and $2,522, respectively, related to consolidated trusts)	386,356	407,228
Liabilities:
Debt (includes $862 and $893, respectively, of debt of Fannie Mae and $3,273 and $2,271, respectively, of debt of consolidated trust, at fair value)	724,799	780,044
Of Consolidated Trusts [Member]
Assets:
Cash and cash equivalents (includes $3 and $348, respectively, related to consolidated trusts)	3	348
Restricted cash (includes $33,136 and $59,619, respectively, related to consolidated trusts)	33,136	59,619
Investments in securities:
Trading, at fair value (includes $21 as of both periods related to consolidated trusts)	21	21
Available-for-sale, at fair value (includes $1,590 and $1,055, respectively, related to consolidated trusts)	1,590	1,055
Mortgage loans:
Loans held for sale, at lower of cost or fair value (includes $73 and $661, respectively, related to consolidated trusts)	73	661
Loans held for investment, at amortized cost (includes $3,084 and $2,962, respectively, at fair value and loans pledged as collateral that may be sold or repledged of $460 and $2,522, respectively, related to consolidated trusts)	2,610,540	2,577,133
Accrued interest receivable, net (includes $8,683 and $8,910, respectively, related to consolidated trusts)	8,683	8,910
Other assets (includes $59 and $593, respectively, related to consolidated trusts)	59	593
Liabilities:
Accrued interest payable (includes $9,584 and $9,712, respectively, related to consolidated trusts)	9,584	9,712
Debt (includes $862 and $893, respectively, of debt of Fannie Mae and $3,273 and $2,271, respectively, of debt of consolidated trust, at fair value)	2,450,046	2,416,956
Other liabilities (includes $707 and $893, respectively, related to consolidated trusts)	$ 707	$ 893

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($) shares in Millions, $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Interest income:
Trading securities	$ 264	$ 330	$ 548	$ 645
Available-for-sale securities	1,152	1,389	2,365	2,862
Mortgage loans (includes $31,613 and $33,682, respectively, for the three months ended and $63,478 and $68,003, respectively, for the six months ended related to consolidated trusts)	35,333	37,632	70,923	75,251
Other	25	41	53	80
Total interest income	36,774	39,392	73,889	78,838
Interest expense:
Interest expense: Short-term debt (includes $2 and $3, respectively, for the three months ended and $5 for the six months ended, for both periods, related to consolidated trusts)	81	167	188	285
Interest expense: Long-term debt (includes $27,919 and $30,043, respectively, for the three months ended and $55,771 and $61,501, respectively, for the six months ended related to consolidated trusts)	31,721	35,018	63,769	71,557
Total interest expense	31,802	35,185	63,957	71,842
Net interest income	4,972	4,207	9,932	6,996
Provision for loan losses	(5,802)	(4,295)	(16,389)	(16,234)
Net interest income (loss) after provision for loan losses	(830)	(88)	(6,457)	(9,238)
Investment gains (losses), net	171	23	246	189
Other-than-temporary impairments	(28)	(48)	(85)	(234)
Noncredit portion of other-than-temporary impairments recognized in other comprehensive income	(28)	(89)	(15)	(139)
Net other-than-temporary impairments	(56)	(137)	(100)	(373)
Fair value gains (losses), net	(1,634)	303	(1,345)	(1,402)
Debt extinguishment gains (losses), net	(43)	(159)	(30)	(283)
Fee and other income (expense)	265	294	502	527
Non-interest income (loss)	(1,297)	324	(727)	(1,342)
Administrative expenses:
Salaries and employee benefits	310	324	630	648
Professional services	169	260	358	454
Occupancy expenses	43	40	85	81
Other administrative expenses	47	46	101	92
Total administrative expenses	569	670	1,174	1,275
Provision (benefit) for guaranty losses	735	69	702	33
Foreclosed property expense (income)	(478)	487	10	468
Other expenses (income)	32	224	384	454
Total expenses	858	1,450	2,270	2,230
Income (loss) before federal income taxes	(2,985)	(1,214)	(9,454)	(12,810)
Provision (benefit) for federal income taxes	(93)	9	(91)	(58)
Net income (loss)	(2,892)	(1,223)	(9,363)	(12,752)
Other comprehensive (loss) income:
Changes in unrealized losses on available-for-sale securities, net of reclassification adjustments and taxes	(1)	1,667	178	3,037
Other	3	3	5	5
Total other comprehensive income	2	1,670	183	3,042
Total comprehensive (loss) income	(2,890)	447	(9,180)	(9,710)
Less: Comprehensive (income) loss attributable to the noncontrolling interest	(1)	5	(1)	4
Total comprehensive (loss) income attributable to Fannie Mae	(2,891)	452	(9,181)	(9,706)
Net loss	(2,892)	(1,223)	(9,363)	(12,752)
Less: Net (income) loss attributable to the noncontrolling interest	(1)	5	(1)	4
Net income (loss) attributable to Fannie Mae	(2,893)	(1,218)	(9,364)	(12,748)
Preferred stock dividends	(2,282)	(1,907)	(4,498)	(3,434)
Net loss attributable to common stockholders	$ (5,175)	$ (3,125)	$ (13,862)	$ (16,182)
Loss per share - Basic (in dollars per share)	$ (0.90)	$ (0.55)	$ (2.43)	$ (2.84)
Loss per share - Diluted (in dollars per share)	$ (0.90)	$ (0.55)	$ (2.43)	$ (2.84)
Weighted-average common shares outstanding - Basic (in shares)	5,730	5,694	5,714	5,693
Weighted-average common shares outstanding - Diluted (in shares)	5,730	5,694	5,714	5,693
Of Consolidated Trusts [Member]
Interest income:
Mortgage loans (includes $31,613 and $33,682, respectively, for the three months ended and $63,478 and $68,003, respectively, for the six months ended related to consolidated trusts)	$ 31,613	$ 33,682	$ 63,478	$ 68,003
Interest expense:
Interest expense: Short-term debt (includes $2 and $3, respectively, for the three months ended and $5 for the six months ended, for both periods, related to consolidated trusts)	2	3	5	5
Interest expense: Long-term debt (includes $27,919 and $30,043, respectively, for the three months ended and $55,771 and $61,501, respectively, for the six months ended related to consolidated trusts)	$ 27,919	$ 30,043	$ 55,771	$ 61,501

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Net change in:
Net cash provided by (used in) operating activities	$ (2,095)	$ (47,133)
Cash flows provided by investing activities:
Purchases of tradings securities held for investment	(545)	(7,887)
Proceeds from maturities and paydowns of trading securities held for investment	1,051	1,398
Proceeds from sales of trading securities held for investment	516	20,442
Purchases of available-for-sale securities	(44)	(142)
Proceeds from maturities and paydowns of available-for-sale securities	6,933	9,022
Proceeds from sales of available-for-sale securities	1,850	5,949
Purchases of loans held for investment	(26,000)	(25,743)
Net change in restricted cash	26,099	9,798
Advances to lenders (SCF)	(27,990)	(23,131)
Proceeds from disposition of acquired property and preforeclosure sales	24,142	17,693
Net change in federal funds sold and securities purchased under agreements to resell or similar arrangements	(7,749)	15,618
Other, net (investing)	(33)	(627)
Net cash provided by investing activities	236,162	250,958
Cash flows used in financing activities:
Payments of cash dividends on senior preferred stock to Treasury	(4,497)	(3,436)
Proceeds from senior preferred stock purchase agreement with Treasury	11,100	23,700
Net change in federal funds purchased and securities sold under agreements to repurchase		142
Other, net (financing)	109	(37)
Net cash used in financing activities	(237,090)	(182,793)
Net increase (decrease) in cash and cash equivalents	(3,023)	21,032
Cash and cash equivalents at beginning of period	17,297	6,812
Cash and cash equivalents at end of period	14,274	27,844
Cash paid during the period for:
Interest	65,710	73,272
Of Fannie Mae [Member]
Cash flows provided by investing activities:
Proceeds from repayments of loans held for investment	11,722	9,188
Cash flows used in financing activities:
Proceeds from issuance of debt	345,028	592,508
Payments to redeem debt	(401,125)	(519,120)
Of Consolidated Trusts [Member]
Cash flows provided by investing activities:
Proceeds from repayments of loans held for investment	226,210	219,380
Cash flows used in financing activities:
Proceeds from issuance of debt	117,760	135,809
Payments to redeem debt	(305,465)	$ (412,359)
Cash and cash equivalents at beginning of period	348
Cash and cash equivalents at end of period	$ 3

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

Notes to Consolidated Financial Statements

Summary of Significant Accounting Policies

1. Summary of Significant Accounting Policies

Organization

We are a stockholder-owned corporation organized and existing under the Federal National Mortgage Association Charter Act (the “Charter Act” or our “charter”). We are a government-sponsored enterprise (“GSE”) and 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.

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; (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; and (3) Treasury's agreement to establish a temporary secured lending credit facility that was available to us and the other GSEs regulated by FHFA under identical terms until December 31, 2009.

Under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Federal Housing Finance Regulatory Reform Act of 2008, (together, the “GSE Act”), the conservator immediately succeeded to (1) all rights, titles, powers and privileges of Fannie Mae, and of any stockholder, officer or director of Fannie Mae with respect to Fannie Mae and its assets, and (2) title to the books, records and assets of any other legal custodian of Fannie Mae. The conservator has since delegated specified authorities to our Board of Directors and has delegated to management the authority to conduct our day-to-day operations. The conservator retains the authority to withdraw its delegations at any time.

We were directed by FHFA to voluntarily delist our common stock and each listed series of our preferred stock from the New York Stock Exchange and the Chicago Stock Exchange. The last trading day for the listed securities on the New York Stock Exchange and the Chicago Stock Exchange was July 7, 2010, and since July 8, 2010, the securities have been traded on the over-the-counter market.

The conservator has the power to transfer or sell any asset or liability of Fannie Mae (subject to limitations and post-transfer notice provisions for transfers of qualified financial contracts) without any approval, assignment of rights or consent of any party. The GSE Act, however, provides that mortgage loans and mortgage-related assets that have been transferred to a Fannie Mae MBS trust must be held by the conservator for the beneficial owners of the Fannie Mae MBS and cannot be used to satisfy the general creditors of the company. As of August 4, 2011, FHFA has not exercised this power.

Neither the conservatorship nor the terms of our agreements with Treasury change our obligation to make required payments on our debt securities or perform under our mortgage guaranty obligations.

On June 20, 2011, FHFA issued a final rule establishing a framework for conservatorship and receivership operations for the GSEs. The final rule, which became effective on July 20, 2011, establishes procedures for conservatorship and receivership, and priorities of claims for contract parties and other claimants. The final rule is part of FHFA's implementation of the powers provided by the Federal Housing Finance Regulatory Reform Act of 2008, and does not seek to anticipate or predict future conservatorships or receiverships.

The conservatorship has no specified termination date and there continues to be uncertainty regarding the future of our company, including how long we will continue to be in existence, the extent of our role in the market, what form we will have, and what ownership interest, if any, our current common and preferred stockholders will hold in us after the conservatorship is terminated. Under the GSE Act, FHFA must place us into receivership if the Director of FHFA makes a written determination that our assets are less than our obligations (that is, we have a net worth deficit) or if we have not been paying our debts, in either case, for a period of 60 days. In addition, the Director of FHFA may place us in receivership at his discretion at any time for other reasons, including conditions that FHFA has already asserted existed at the time the former Director of FHFA placed us into conservatorship. Placement into receivership would have a material adverse effect on holders of our common stock, preferred stock, debt securities and Fannie Mae MBS. Should we be placed into receivership, different assumptions would be required to determine the carrying value of our assets, which could lead to substantially different financial results. We are not aware of any plans of FHFA to significantly change our business model or capital structure in the near-term.

Impact of U.S. Government Support

We are dependent upon the continued support of Treasury to eliminate our net worth deficit, which avoids our being placed into receivership. Based on consideration of all the relevant conditions and events affecting our operations, including our dependence on the U.S. government, we continue to operate as a going concern and in accordance with our delegation of authority from FHFA.

Pursuant to the amended senior preferred stock purchase agreement, Treasury has committed to provide us with funding as needed to help us maintain a positive net worth thereby avoiding the mandatory receivership trigger described above. We have received a total of $98.7 billion as of June 30, 2011 under Treasury's funding commitment and the Acting Director of FHFA will submit a request for an additional $5.1 billion from Treasury to eliminate our net worth deficit as of June 30, 2011. The aggregate liquidation preference of the senior preferred stock was $99.7 billion as of June 30, 2011 and will increase to $104.8 billion as a result of FHFA's request on our behalf for funds to eliminate our net worth deficit as of June 30, 2011.

Treasury's maximum funding commitment to us prior to a December 2009 amendment of the senior preferred stock purchase agreement was $200 billion. The amendment to the agreement stipulates that the cap on Treasury's funding commitment to us under the senior preferred stock purchase agreement will increase as necessary to accommodate any net worth deficits for calendar quarters in 2010 through 2012. For any net worth deficits as of December 31, 2012, Treasury's remaining funding commitment will be $124.8 billion ($200 billion less $75.2 billion cumulatively drawn through March 31, 2010) less the smaller of either (a) our positive net worth as of December 31, 2012 or (b) our cumulative draws from Treasury for the calendar quarters in 2010 through 2012.

Treasury has waived the quarterly commitment fee under the senior preferred stock purchase agreement for the first, second and third quarters of 2011 due to the continued fragility of the U.S. mortgage market and because Treasury believed that imposing the commitment fee would not generate increased compensation for taxpayers. Treasury stated that it will reevaluate the situation during the next calendar quarter to determine whether to set the quarterly commitment fee for the fourth quarter of 2011.

We fund our business primarily through the issuance of short-term and long-term debt securities in the domestic and international capital markets. Because debt issuance is our primary funding source, we are subject to “roll-over,” or refinancing, risk on our outstanding debt. Our ability to issue long-term debt has been strong primarily due to actions taken by the federal government to support us and the financial markets.

We believe that continued federal government support of our business and the financial markets, as well as our status as a GSE, are essential to maintaining our access to debt funding. Changes or perceived changes in the government's support could materially adversely affect our ability to refinance our debt as it becomes due, which could have a material adverse impact on our liquidity, financial condition and results of operations. In addition, due to our reliance on the U.S. government's support, our access to debt funding also could be materially adversely affected by a change or perceived change in the creditworthiness of the U.S. government. Future changes or disruptions in the financial markets could significantly change the amount, mix and cost of funds we obtain, which also could increase our liquidity and roll-over risk and have a material adverse impact on our liquidity, financial condition and results of operations.

On February 11, 2011, Treasury and HUD released a report to Congress on reforming America's housing finance market. The report provides that the Administration will work with FHFA to determine the best way to responsibly reduce Fannie Mae's and Freddie Mac's role in the market and ultimately wind down both institutions. The report emphasizes the importance of proceeding with a careful transition plan and providing the necessary financial support to Fannie Mae and Freddie Mac during the transition period. We expect that Congress will continue to hold hearings and consider legislation in 2011 on the future status of Fannie Mae and Freddie Mac, including proposals that would result in a substantial change to our business structure, or our operations, or that involve Fannie Mae's liquidation or dissolution. We cannot predict the prospects for the enactment, timing or content of legislative proposals regarding the future status of the GSEs.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted 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. Results for the three and six months ended June 30, 2011 may not necessarily be indicative of the results for the year ending December 31, 2011. The unaudited interim condensed consolidated financial statements as of and for the three and six months ended June 30, 2011 should be read in conjunction with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2010 (“2010 Form 10-K”), filed with the SEC on February 24, 2011.

Related Parties

As a result of our issuance to Treasury of the warrant to purchase shares of Fannie Mae common stock equal to 79.9% of the total number of shares of Fannie Mae common stock, we and the Treasury are deemed related parties. As of June 30, 2011, Treasury held an investment in our senior preferred stock with an aggregate liquidation preference of $99.7 billion. Our administrative expenses were reduced by $25 million and $60 million for the three and six months ended June 30, 2011, respectively, due to accrual and receipt of reimbursements from Treasury and Freddie Mac for expenses incurred as program administrator for the Home Affordable Modification Program (“HAMP”) and other initiatives under the Making Home Affordable Program.

During the six months ended June 30, 2011, we received a refund of $1.1 billion from the Internal Revenue Service (“IRS”), a bureau of Treasury, related to the carryback of our 2009 operating loss to the 2008 and 2007 tax years. In addition, in June 2011, we effectively settled our 2007 and 2008 tax years with the IRS and as a result, we have recognized an income tax benefit of $90 million in our condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2011.

Under a temporary credit and liquidity facilities (“TCLF”) program, we had $3.5 billion and $3.7 billion outstanding, which include principal and interest, of three-year standby credit and liquidity support as of June 30, 2011 and December 31, 2010, respectively. Treasury has purchased participating interests in these temporary credit and liquidity facilities. Under a new issue bond (“NIB”) program, we had $7.6 billion outstanding of pass-through securities backed by single-family and multifamily housing bonds issued by housing finance agencies (“HFAs”) as of both June 30, 2011 and December 31, 2010. Treasury bears the initial loss of principal under the TCLF program and the NIB program up to 35% of the total principal on a combined program-wide basis.

FHFA's control of both us and Freddie Mac has caused us and Freddie Mac to be related parties. No transactions outside of normal business activities have occurred between us and Freddie Mac. As of June 30, 2011 and December 31, 2010, we held Freddie Mac mortgage-related securities with a fair value of $15.9 billion and $18.3 billion, respectively, and accrued interest receivable of $77 million and $93 million, respectively. We recognized interest income on Freddie Mac mortgage-related securities held by us of $172 million and $277 million for the three months ended June 30, 2011 and 2010, respectively, and $360 million and $612 million for the six months ended June 30, 2011 and 2010, respectively. In addition, Freddie Mac may be an investor in variable interest entities that we have consolidated, and we may be an investor in variable interest entities that Freddie Mac has consolidated.

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, valuation of certain financial instruments and other assets and liabilities, the allowance for loan losses and reserve for guaranty losses, and other-than-temporary impairment of investment securities. Actual results could be different from these estimates.

In the three months ended June 30, 2011, we updated our loan loss models to incorporate more recent data on prepayments of modified loans which contributed to an increase to our allowance for loan losses of approximately $1.5 billion. The change resulted in slower expected prepayment speeds, which extended the expected lives of modified loans and lowered the present value of cash flows on those loans. Also in the three months ended June 30, 2011, we updated our estimate of the reserve for guaranty losses related to private-label mortgage-related securities that we have guaranteed to increase our focus on earlier stage delinquency as a driver of foreclosures in order to reflect changes to the foreclosure environment. This update resulted in an increase to our reserve for guaranty losses included within “Other liabilities” of approximately $700 million.

In addition, in the three months ended June 30, 2011, we revised our estimate for amounts due to us related to outstanding repurchase requests to incorporate additional loan-level attributes which resulted in a decrease in our provision for loan losses and foreclosed property expense of $1.5 billion.

Principles of Consolidation

Our 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 balances and transactions have been eliminated. The typical condition for a controlling financial interest is ownership of a majority of the voting interests of an entity. A controlling financial interest may also exist in entities through arrangements that do not involve voting interests, such as a variable interest entity (“VIE”).

Cash and Cash Equivalents and Statements of Cash Flows

During 2010, we identified certain servicer and consolidation related transactions that were not appropriately reflected in our condensed consolidated statements of cash flows for the six months ended June 30, 2010. As a result, our condensed consolidated statement of cash flows for the six months ended June 30, 2010 includes a $2.5 billion adjustment to decrease net cash used in operating activities, a $4.6 billion adjustment to decrease net cash provided by investing activities, primarily related to “Proceeds from sales of available-for-sale securities,” “Purchases of loans held for investment,” and “Proceeds from repayments of loans held for investment of consolidated trusts” and a $2.1 billion adjustment to decrease net cash used in financing activities, primarily related to “Proceeds from issuance of long-term debt of consolidated trusts.” We evaluated the effects of these misstatements, both quantitatively and qualitatively, on our previously reported condensed consolidated statements of cash flows for the six months ended June 30, 2010 and concluded that this prior period was not materially misstated.

Collateral

Cash Collateral

The following table displays cash collateral accepted and pledged as of June 30, 2011 and December 31, 2010.

		As of
		June 30, 2011		December 31, 2010

			(Dollars in millions)

Cash collateral accepted⁽¹⁾		$	2,671	$	3,101

Cash collateral pledged		$	5,599	$	5,884
Cash collateral pledged related to derivatives activities			2,907		3,453
	Total cash collateral pledged	$	8,506	$	9,337

___________
⁽¹⁾	Includes restricted cash of $2.5 billion as of both June 30, 2011 and December 31, 2010.

Non-Cash Collateral

The following table displays non-cash collateral pledged and accepted as of June 30, 2011 and December 31, 2010.

		As of
		June 30, 2011		December 31, 2010

			(Dollars in millions)

Non-cash collateral pledged where the secured party has the right
	to sell or repledge:
	Held-for-investment loans of consolidated trusts	$	460	$	2,522

Non-cash collateral accepted with the right to sell or repledge⁽¹⁾		$	17,011	$	7,500
Non-cash collateral accepted without the right to sell or repledge			8,587		6,744

__________
⁽¹⁾	None of this collateral was sold or repledged as of June 30, 2011 and December 31, 2010.

Additionally, we provide early funding to lenders on a collateralized basis and account for the advances as secured lending arrangements in “Other assets” in our condensed consolidated balance sheets. These amounts totaled $3.8 billion as of June 30, 2011 and $7.2 billion at December 31, 2010.

Our liability to third-party holders of Fannie Mae MBS that arises as the result of a consolidation of a securitization trust is collateralized by the underlying loans and/or mortgage-related securities.

When securities sold under agreements to repurchase meet all of the conditions of a secured financing, we report the collateral of the transferred securities at fair value, excluding accrued interest. The fair value of these securities is classified in “Investments in securities” in our condensed consolidated balance sheets. We had no repurchase agreements outstanding as of June 30, 2011 and $49 million in repurchase agreements outstanding as of December 31, 2010.

Fair Value Gains (Losses), Net

The following table displays the composition of “Fair value gains (losses), net” for the three and six months ended June 30, 2011 and 2010.

		For the Three				For the Six
		Months Ended				Months Ended
		June 30,				June 30,
		2011		2010		2011		2010
		(Dollars in millions)

Derivatives fair value losses, net		$	(1,677)	$	(397)	$	(1,538)	$	(3,159)
Trading securities gains, net			135		640		360		1,698
Other, net			(92)		60		(167)		59
	Fair value gains (losses), net	$	(1,634)	$	303	$	(1,345)	$	(1,402)

Reclassifications

To conform to our current period presentation, we have reclassified and condensed certain amounts reported in our condensed consolidated financial statements. The following table displays the line items that were reclassified and condensed in our condensed consolidated balance sheet as of December 31, 2010.

				As of December 31, 2010
				Before		After
				Reclassification		Reclassification

					(Dollars in millions)
Reclassified lines to:
	Assets:
		Servicer and MBS trust receivable		$	951	$
		Other assets			25,875		26,826

	Liabilities:
		Short-term debt:
			Of Fannie Mae		151,884
			Of consolidated trusts		5,359
		Long-term debt:
			Of Fannie Mae		628,160
			Of consolidated trusts		2,411,597
		Debt:
			Of Fannie Mae				780,044
			Of consolidated trusts				2,416,956

		Reserve for guaranty losses			323
		Servicer and MBS trust payable			2,950
		Other liabilities			10,400		13,673

The following table represents the line items that we reclassified and condensed in our condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2010.

				For the Three Months Ended				For the Six Months Ended
				June 30, 2010				June 30, 2010
				Before		After		Before		After
				Reclassification		Reclassification		Reclassification		Reclassification

				(Dollars in millions)
Reclassified lines to:
	Interest Income:
		Mortgage loans:
			Of Fannie Mae	$	3,950	$		$	7,248	$
			Of consolidated trusts		33,682				68,003
		Mortgage loans (includes $33,682 and $68,003, respectively,
			related to consolidated trusts)				37,632				75,251
	Interest expense:
		Short-term debt:
			Of Fannie Mae		164				280
			Of consolidated trusts		3				5
		Long-term debt:
			Of Fannie Mae		4,975				10,056
			Of consolidated trusts		30,043				61,501
		Short-term debt (includes $3 and $5, respectively, related to					167				285
			consolidated trusts)
		Long-term debt (includes $30,043 and $61,501, respectively,					35,018				71,557
			related to consolidated trusts)

	Guaranty fee income				52				106
	Fee and other income				242		294		421		527

	Losses from partnership investments				26				84
	Other expenses				198		224		370		454

In our condensed consolidated statements of cash flows for the six months ended June 30, 2010, we reclassified the following amounts within “Cash flows used in financing activities” to conform to our current period presentation: $394.7 billion from “Proceeds from issuance of short-term debt of Fannie Mae” and $197.8 billion from “Proceeds from issuance of long-term debt of Fannie Mae” to “Proceeds from issuance of debt of Fannie Mae,” $339.4 billion from “Payments to redeem short-term debt of Fannie Mae” and $180.1 billion from “Payments to redeem long-term debt of Fannie Mae” to “Payments to redeem debt of Fannie Mae,” $5.9 billion from “Proceeds from issuance of short-term debt of consolidated trusts” and $128.1 billion from “Proceeds from issuance of long-term debt of consolidated trusts” to “Proceeds from issuance of debt of consolidated trusts,” $18.1 billion from “Payments to redeem short-term debt of consolidated trusts” and $394.2 billion from “Payments to redeem long-term debt of consolidated trusts” to “Payments to redeem debt of consolidated trusts” and $37 million from “Proceeds from issuance of debt of Fannie Mae” to “Other, net.”

New Accounting Pronouncements

In April 2011, the Financial Accounting Standards Board (“FASB”) issued a new standard that clarifies when a loan restructuring is considered a troubled debt restructuring (“TDR”). Specifically, the new standard amends existing guidance to clarify how to determine when a borrower is experiencing financial difficulty, when a concession is granted by a creditor, and when a delay in payment is considered insignificant.

The new standard is effective for the first interim or annual period beginning on or after June 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption. We will adopt this new guidance effective for the period ending September 30, 2011. As a result of implementing the new standard, we expect an increase in our TDR population such that we estimate that we will recognize approximately $200 million of additional impairment expense in our condensed consolidated statements of operations and comprehensive loss upon initial adoption.

Consolidations and Transfers of Financial Assets

6 Months Ended

Jun. 30, 2011

Notes to Consolidated Financial Statements

Consolidations and Transfers of Financial Assets

2. Consolidations and Transfers of Financial Assets

We have interests in various entities that are considered to be VIEs. The primary types of entities are securitization trusts guaranteed by us via lender swap and portfolio securitization transactions, mortgage and asset-backed trusts that were not created by us, as well as housing partnerships that are established to finance the acquisition, construction, development or rehabilitation of affordable multifamily and single-family housing. These interests include investments in securities issued by VIEs, such as Fannie Mae MBS created pursuant to our securitization transactions and our guaranty to the entity. We consolidate the substantial majority of our single-class securitization trusts.

As of June 30, 2011, we consolidated certain Fannie Mae securities that were not consolidated as of December 31, 2010 because we now hold in our portfolio a substantial portion of the certificates. As a result of consolidating these securities, which had combined total assets of $2.3 billion in unpaid principal balance as of June 30, 2011, we derecognized our investment in these trusts and recognized the assets and liabilities of the consolidated trusts at their fair value.

As of December 31, 2010, we consolidated VIEs that were no longer consolidated as of June 30, 2011. These VIEs were Fannie Mae securitization trusts and were deconsolidated because we no longer hold in our portfolio a substantial portion of the certificates. As a result of deconsolidating these trusts, which had combined total assets of $31 million in unpaid principal balance as of December 31, 2010, we derecognized the assets and liabilities of the trusts and recognized at fair value our retained interests as securities in our condensed consolidated balance sheet.

Unconsolidated VIEs

We also have interests in VIEs that we do not consolidate because we are not deemed to be the primary beneficiary. These unconsolidated VIEs include securitization trusts, as well as other investment entities. The following table displays the carrying amount and classification of our assets and liabilities that relate to our involvement with unconsolidated VIEs as of June 30, 2011 and December 31, 2010, as well as our maximum exposure to loss and the total assets of those unconsolidated VIEs.

			As of June 30, 2011
			Mortgage-Backed		Asset-Backed		Limited
			Trusts		Trusts		Partnership Investments
			(Dollars in millions)
Assets and liabilities recorded in our condensed consolidated
	balance sheets:
	Assets:
		Available-for-sale securities⁽¹⁾	$	77,612	$	-	$	-
		Trading securities⁽¹⁾		23,739		3,242		-
		Other assets		274		-		125
	Other liabilities			1,318		-		152
	Net carrying amount		$	100,307	$	3,242	$	(27)
Maximum exposure to loss⁽¹⁾			$	106,010	$	3,242	$	363
Total assets of unconsolidated VIEs⁽¹⁾			$	651,368	$	328,570	$	13,237


			As of December 31, 2010⁽²⁾
			Mortgage-Backed		Asset-Backed		Limited
			Trusts		Trusts		Partnership Investments
			(Dollars in millions)
Assets and liabilities recorded in our condensed consolidated
	balance sheets:
	Assets:
		Available-for-sale securities⁽¹⁾	$	84,770	$	-	$	-
		Trading securities⁽¹⁾		24,021		5,321		-
		Other assets		257		-		94
	Other liabilities			773		-		170
	Net carrying amount		$	108,275	$	5,321	$	(76)
Maximum exposure to loss⁽¹⁾			$	111,004	$	5,321	$	319
Total assets of unconsolidated VIEs⁽¹⁾			$	740,387	$	363,721	$	13,102

__________

⁽¹⁾	Contains securities exposed through consolidation which may also represent an interest in other unconsolidated VIEs.

⁽²⁾	Certain prior period amounts have been reclassified to conform to the current period presentation.

Our maximum exposure to loss generally represents the greater of our recorded investment in the entity or the unpaid principal balance of the assets covered by our guaranty. However, our securities issued by Fannie Mae multi-class resecuritization trusts that are not consolidated do not give rise to any additional exposure to loss as we already consolidate the underlying collateral.

Transfers of Financial Assets

We issue Fannie Mae MBS through portfolio securitization transactions by transferring pools of mortgage loans or 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 portfolio in a portfolio securitization transaction. For the three months ended June 30, 2011 and 2010, the unpaid principal balance of portfolio securitizations was $27.3 billion and $15.1 billion, respectively. For the six months ended June 30, 2011 and 2010, the unpaid principal balance of portfolio securitizations was $56.6 billion and $32.9 billion, respectively.

The majority of our portfolio securitization transactions do not qualify for sale treatment. As a result, our continuing involvement in the form of guaranty assets and guaranty liabilities with assets that were transferred into unconsolidated trusts is not material. We report the assets and liabilities of consolidated trusts created via portfolio securitization transactions that do not qualify as sales in our condensed consolidated balance sheets.

The following table displays some key characteristics of the securities retained in unconsolidated portfolio securitization trusts.


		Fannie Mae
		Single-class
		MBS & Fannie			REMICS &
		Mae Megas			SMBS
	(Dollars in millions)
As of June 30, 2011
Unpaid principal balance	$	654		$	14,053
Fair value		713			15,071
Weighted-average coupon		6.23	%		6.05	%
Weighted-average loan age		4.9years			4.7years
Weighted-average maturity		24.0years			20.0years


As of December 31, 2010
Unpaid principal balance	$	63		$	15,771
Fair value		68			16,745
Weighted-average coupon		6.58	%		6.28	%
Weighted-average loan age		4.2years			4.4years
Weighted-average maturity		25.6years			22.0years

For the three months ended June 30, 2011 and 2010, the principal and interest received on retained interests was $715 million and $887 million, respectively. For the six months ended June 30, 2011 and 2010, the principal and interest received on retained interests was $1.5 billion and $1.7 billion, respectively.

Managed Loans

We define “managed loans” as on-balance sheet mortgage loans as well as mortgage loans that we have securitized in unconsolidated portfolio securitization trusts. The following table displays the unpaid principal balances of managed loans, including those managed loans that are delinquent as of June 30, 2011 and December 31, 2010.

		Unpaid Principal Balance		Principal Amount of Delinquent Loans⁽¹⁾
			(Dollars in millions)
As of June 30, 2011
Loans held for investment
	Of Fannie Mae	$	402,742	$	129,773
	Of consolidated trusts		2,598,027		26,028
Loans held for sale			483		59
Securitized loans			2,168		63
	Total loans managed	$	3,003,420	$	155,923
As of December 31, 2010
Loans held for investment
	Of Fannie Mae	$	423,686	$	141,342
	Of consolidated trusts		2,565,347		34,080
Loans held for sale			964		127
Securitized loans			2,147		78
	Total loans managed	$	2,992,144	$	175,627

__________
⁽¹⁾	Represents the unpaid principal balance of loans held for investment and loans held for sale for which we are no longer accruing interest and loans 90 days or more delinquent which are continuing to accrue interest.

Qualifying Sales of Portfolio Securitizations

We recognize assets obtained and liabilities incurred in a portfolio securitization at fair value. Proceeds from the initial sale of securities from portfolio securitizations were $513 million and $126 million for the three months ended June 30, 2011 and 2010, respectively. Proceeds from the initial sale of securities from portfolio securitizations were $621 million and $375 million for the six months ended June 30, 2011 and 2010, respectively. For the three and six months ended June 30, 2010, proceeds from the initial sale of securities were reduced by $338 million and $1.6 billion, respectively, from the amount previously disclosed, primarily related to deconsolidated REMICs that should have been presented as proceeds from issuance of long-term debt of consolidated trusts.

Mortgage Loans

6 Months Ended

Jun. 30, 2011

Notes to Consolidated Financial Statements

Mortgage Loans

3. Mortgage Loans

The following table displays our mortgage loans as of June 30, 2011 and December 31, 2010.

			As of
			June 30, 2011						December 31, 2010
			Of		Of				Of		Of
			Fannie		Consolidated				Fannie		Consolidated
			Mae		Trusts		Total		Mae		Trusts		Total
			(Dollars in millions)
Single-family			$	317,690	$	2,510,772	$	2,828,462	$	328,824	$	2,490,623	$	2,819,447
Multifamily				85,461		87,329		172,790		95,157		75,393		170,550
	Total unpaid principal balance of mortgage loans			403,151		2,598,101		3,001,252		423,981		2,566,016		2,989,997
Cost basis and fair value adjustments, net				(16,428)		12,511		(3,917)		(16,498)		11,777		(4,721)
Allowance for loan losses for loans held for investment				(55,966)		(13,540)		(69,506)		(48,530)		(13,026)		(61,556)
		Total mortgage loans	$	330,757	$	2,597,072	$	2,927,829	$	358,953	$	2,564,767	$	2,923,720

During the three months ended June 30, 2011, we did not redesignate any loans from held for investment (“HFI”) to held for sale (“HFS”). During the six months ended June 30, 2011, we redesignated loans with a carrying value of $561 million from HFI to HFS.

The following tables display an aging analysis of the total recorded investment in our HFI mortgage loans, excluding loans for which we have elected the fair value option, by portfolio segment and class as of June 30, 2011 and December 31, 2010. For purposes of this table, each loan in our portfolio is included in only one segment and class category.

				As of June 30, 2011⁽¹⁾
				30 - 59 Days Delinquent		60 - 89 Days Delinquent		Seriously Delinquent⁽²⁾		Total Delinquent		Current		Total		Recorded Investment in Loans Over 90 Days Delinquent and Accruing Interest		Recorded Investment in Nonaccrual Loans

				(Dollars in millions)
Single-family:
	Primary⁽³⁾		$	43,387	$	15,120	$	85,242	$	143,749	$	2,348,882	$	2,492,631	$	115	$	100,192
	Government⁽⁴⁾			107		47		303		457		51,490		51,947		303		-
	Alt-A			7,660		3,372		32,183		43,215		147,541		190,756		19		35,531
	Other⁽⁵⁾			3,641		1,543		12,972		18,156		78,726		96,882		99		14,317
		Total single-family		54,795		20,082		130,700		205,577		2,626,639		2,832,216		536		150,040

Multifamily ⁽⁶⁾				228		NA		849		1,077		173,721		174,798		-		801
		Total	$	55,023	$	20,082	$	131,549	$	206,654	$	2,800,360	$	3,007,014	$	536	$	150,841

				As of December 31, 2010⁽¹⁾
				30 - 59 Days Delinquent		60 - 89 Days Delinquent		Seriously Delinquent⁽²⁾		Total Delinquent		Current		Total		Recorded Investment in Loans Over 90 Days Delinquent and Accruing Interest		Recorded Investment in Nonaccrual Loans

				(Dollars in millions)
Single-family:
	Primary⁽³⁾		$	47,048	$	18,055	$	93,302	$	158,405	$	2,299,080	$	2,457,485	$	139	$	110,758
	Government⁽⁴⁾			125		58		371		554		51,930		52,484		354		-
	Alt-A			8,547		4,097		37,557		50,201		156,951		207,152		21		41,566
	Other⁽⁵⁾			3,785		1,831		15,290		20,906		84,473		105,379		80		17,022
		Total single-family		59,505		24,041		146,520		230,066		2,592,434		2,822,500		594		169,346

Multifamily ⁽⁶⁾				382		NA		1,132		1,514		171,000		172,514		-		1,012
		Total	$	59,887	$	24,041	$	147,652	$	231,580	$	2,763,434	$	2,995,014	$	594	$	170,358

____________
⁽¹⁾	Recorded investment consists of (a) unpaid principal balance; (b) unamortized premiums, discounts and other cost basis adjustments; and
	(c) accrued interest receivable.
⁽²⁾	Single-family seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process. Multifamily seriously delinquent
	loans are loans that are 60 days or more past due.
⁽³⁾	Consists of mortgage loans that are not included in other loan classes.
⁽⁴⁾	Consists of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies that are not Alt-A.
	Primarily consists of reverse mortgages which due to their nature are not aged and are included in the current column.
⁽⁵⁾	Includes loans with higher-risk loan characteristics, such as interest-only loans and negative-amortizing loans that are neither government
	nor Alt-A.
⁽⁶⁾	Multifamily loans 60-89 days delinquent are included in the seriously delinquent column.

The following table displays the total recorded investment in our HFI loans, excluding loans for which we have elected the fair value option, by portfolio segment, class and credit quality indicators as of June 30, 2011 and December 31, 2010. The single-family credit quality indicator is updated quarterly and the multifamily credit quality indicators are as of the origination date of each loan.

				As of
				June 30, 2011⁽¹⁾⁽²⁾						December 31, 2010⁽¹⁾⁽²⁾
				Primary⁽³⁾		Alt-A		Other⁽⁴⁾		Primary⁽³⁾		Alt-A		Other⁽⁴⁾
				(Dollars in millions)
Single-family
	Estimated mark-to-market LTV ratio:⁽⁵⁾
		Less than or equal to 80%		$	1,548,616	$	69,375	$	26,745	$	1,561,202	$	79,305	$	29,854
		80.01% to 90%			383,654		23,555		10,883		376,414		27,472		13,394
		90.01% to 100%			224,680		21,415		10,740		217,193		24,392		12,935
		100.01% to 110%			120,482		17,107		9,941		112,376		18,022		11,400
		110.01% to 120%			68,729		12,948		8,535		62,283		12,718		8,967
		120.01% to 125%			24,031		5,184		3,615		21,729		5,083		3,733
		Greater than 125%			122,439		41,172		26,423		106,288		40,160		25,096
			Total	$	2,492,631	$	190,756	$	96,882	$	2,457,485	$	207,152	$	105,379

				As of
				June 30, 2011⁽¹⁾		December 31, 2010⁽¹⁾

				(Dollars in millions)
Multifamily
	Original LTV ratio:
		Less than or equal to 70%		$	99,064	$	96,844
		70.01% to 80%			71,187		71,560
		Greater than 80%			4,547		4,110
			Total	$	174,798	$	172,514

	Original debt service coverage ratio:
		Less than or equal to 1.10%		$	14,097	$	15,034
		1.11% to 1.25%			51,556		50,745
		Greater than 1.25%			109,145		106,735
			Total	$	174,798	$	172,514

___________

⁽¹⁾	Recorded investment consists of the following: (a) unpaid principal balance; (b) unamortized premiums, discounts and other cost basis adjustments; and (c) accrued interest receivable.

⁽²⁾	Excludes $51.9 billion and $52.5 billion as of June 30, 2011 and December 31, 2010, respectively, of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies that are not Alt-A loans. The segment class is primarily reverse mortgages for which we do not calculate an estimated mark-to-market LTV.

⁽³⁾	Consists of mortgage loans that are not included in other loan classes.

⁽⁴⁾	Includes loans with higher-risk loan characteristics, such as interest-only loans and negative-amortizing loans that are neither government nor Alt-A.

⁽⁵⁾	The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each reported period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates periodic changes in home value.

Individually Impaired Loans

Individually impaired loans include TDRs, acquired credit-impaired loans, and other multifamily loans regardless of whether we are currently accruing interest. The following tables display the total recorded investment, unpaid principal balance, related allowance and average recorded investment as of June 30, 2011 and December 31, 2010 and interest income recognized for the three and six months ended June 30, 2011 and 2010 for individually impaired loans.

					As of June 30, 2011								For the Three Months Ended June 30, 2011						For the Six Months Ended June 30, 2011
					Unpaid Principal Balance		Total Recorded Investment⁽¹⁾		Related Allowance for Loan Losses		Related Allowance for Accrued Interest Receivable		Average Recorded Investment		Total Interest Income Recognized⁽²⁾		Interest Income Recognized on a Cash Basis		Average Recorded Investment		Total Interest Income Recognized⁽²⁾		Interest Income Recognized on a Cash Basis
					Unpaid Principal Balance		Total Recorded Investment⁽¹⁾		Related Allowance for Loan Losses		Related Allowance for Accrued Interest Receivable		Average Recorded Investment		Total Interest Income Recognized⁽²⁾		Interest Income Recognized on a Cash Basis		Average Recorded Investment		Total Interest Income Recognized⁽²⁾		Interest Income Recognized on a Cash Basis

					(Dollars in millions)
Individually impaired loans:
	With related allowance recorded:
		Single-family:
			Primary⁽³⁾		$	106,911	$	99,339	$	28,217	$	690	$	97,984	$	911	$	326	$	97,723	$	1,815	$	367
			Government⁽⁴⁾			233		229		47		6		274		3		-		265		6		-
			Alt-A			32,053		28,920		10,817		296		28,862		239		96		29,213		481		98
			⁽⁵⁾			15,206		14,327		5,131		111		14,158		106		41		14,108		212		47
				Total single-family		154,403		142,815		44,212		1,103		141,278		1,259		463		141,309		2,514		512

		Multifamily				2,076		2,076		523		21		2,055		23		2		2,135		48		3
		Total individually impaired loans
		with related allowance recorded				156,479		144,891		44,735		1,124		143,333		1,282		465		143,444		2,562		515

	With no related allowance recorded:⁽⁶⁾
		Single-family:
			Primary⁽³⁾			11,959		8,127		-		-		7,399		144		31		5,695		252		88
			Government⁽⁴⁾			18		6		-		-		15		3		-		11		4		-
			Alt-A			4,252		2,212		-		-		1,959		53		7		1,331		86		26
			⁽⁵⁾			1,053		591		-		-		541		13		3		385		21		7
				Total single-family		17,282		10,936		-		-		9,914		213		41		7,422		363		121

		Multifamily				688		676		-		-		686		10		2		711		25		5
		Total individually impaired loans
		with no related allowance recorded				17,970		11,612		-		-		10,600		223		43		8,133		388		126

	Total individually impaired loans⁽⁷⁾				$	174,449	$	156,503	$	44,735	$	1,124	$	153,933	$	1,505	$	508	$	151,577	$	2,950	$	641

					As of December 31, 2010
					Unpaid Principal Balance		Total Recorded Investment⁽¹⁾		Related Allowance for Loan Losses		Related Allowance for Accrued Interest Receivable		Average Recorded Investment
					(Dollars in millions)
Individually impaired loans:
	With related allowance recorded:
		Single-family:
			Primary⁽³⁾		$	99,838	$	93,024	$	23,565	$	772	$	81,258
			Government⁽⁴⁾			240		248		38		7		141
			Alt-A			30,932		28,253		9,592		368		25,361
			⁽⁵⁾			14,429		13,689		4,479		137		12,094
				Total single-family		145,439		135,214		37,674		1,284		118,854

		Multifamily				2,372		2,371		556		23		1,496
		Total individually impaired loans
		with related allowance recorded				147,811		137,585		38,230		1,307		120,350

	With no related allowance recorded:⁽⁶⁾
		Single-family:
			Primary⁽³⁾			10,586		7,237		-		-		7,860
			Government⁽⁴⁾			19		13		-		-		11
			Alt-A			3,600		1,884		-		-		2,091
			⁽⁵⁾			879		512		-		-		589
				Total single-family		15,084		9,646		-		-		10,551

		Multifamily				789		811		-		-		642
		Total individually impaired loans
		with no related allowance recorded				15,873		10,457		-		-		11,193

	Total individually impaired loans⁽⁷⁾				$	163,684	$	148,042	$	38,230	$	1,307	$	131,543

___________

⁽¹⁾	Recorded investment consists of the following: (a) unpaid principal balance; (b) unamortized premiums, discounts and other cost basis adjustments; and (c) accrued interest receivable.

⁽²⁾	Total single-family interest income recognized of $1.5 billion for the three months ended June 30, 2011 consists of $1.1 billion of contractual interest and $383 million of effective yield adjustments. Total single-family interest income recognized of $2.9 billion for the six months ended June 30, 2011 consists of $2.1 billion of contractual interest and $735 million of effective yield adjustments.

⁽³⁾	Consists of mortgage loans that are not included in other loan classes.

⁽⁴⁾	Consists of mortgage loans guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies that are not Alt-A.

⁽⁵⁾	Includes loans with higher-risk characteristics, such as interest-only loans and negative-amortizing loans that are neither government nor Alt-A.

⁽⁶⁾	The discounted cash flows or collateral value equals or exceeds the carrying value of the loan and, as such, no valuation allowance is required.

⁽⁷⁾	Includes single-family loans restructured in a TDR with a recorded investment of $149.8 billion and $140.1 billion as of June 30, 2011 and December 31, 2010, respectively. Includes multifamily loans restructured in a TDR with a recorded investment of $993 million and $939 million as of June 30, 2011 and December 31, 2010, respectively.

Interest income recognized on impaired loans was $455 million for the three months ended June 30, 2010 and $2.6 billion for the six months ended June 30, 2010. Interest income recognized on a cash basis on impaired loans was $558 million for the three months ended June 30, 2010 and $891 million for the six months ended June 30, 2010.

Loans Acquired in a Transfer

We acquired delinquent loans from unconsolidated trusts and long-term standby commitments with an unpaid principal balance plus accrued interest of $48 million and $75 million for the three months ended June 30, 2011 and 2010, respectively, and $96 million and $160 million for the six months ended June 30, 2011 and 2010, respectively. The following table displays the outstanding balance, carrying amount and accretable yield of acquired credit-impaired loans as of June 30, 2011 and December 31, 2010, excluding loans that were modified as TDRs subsequent to their acquisition from MBS trusts.

		As of
		June 30,		December 31,
		2011		2010
			(Dollars in millions)
Outstanding contractual balance		$	6,351	$	8,519
Carrying amount:
	Loans on accrual status	$	1,836	$	2,029
	Loans on nonaccrual status		1,696		2,449
Total carrying amount of loans		$	3,532	$	4,478
Accretable yield		$	1,965	$	2,412

The following table displays interest income recognized and the impact to the “Provision for credit losses” related to loans that are still being accounted for as acquired credit-impaired loans, as well as loans that have been subsequently modified as a TDR, for the three and six months ended June 30, 2011 and 2010.

			For the				For the
			Three Months Ended				Six Months Ended
			June 30,				June 30,
			2011		2010		2011		2010
			(Dollars in millions)
Accretion of fair value discount⁽¹⁾			$	250	$	288	$	481	$	554
Interest income on loans returned to accrual status or subsequently
	modified as TDRs			265		298		520		619
		Total interest income recognized on acquired credit-impaired loans	$	515	$	586	$	1,001	$	1,173
Increase (Decrease) in “Provision for loan losses” subsequent to the
	acquisition of credit-impaired loans		$	721	$	(120)	$	959	$	444

__________

⁽¹⁾	Represents accretion of the fair value discount that was recorded on acquired credit-impaired loans.

Investments in Securities

6 Months Ended

Jun. 30, 2011

Notes to 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 as “Fair value gains (losses), net” in our condensed consolidated statements of operations and comprehensive loss. The following table displays our investments in trading securities and the cumulative amount of net losses recognized from holding these securities as of June 30, 2011 and December 31, 2010.

			As of
			June 30,		December 31,
			2011		2010
			(Dollars in millions)
Mortgage-related securities:
	Fannie Mae		$	7,343	$	7,398
	Freddie Mac			1,392		1,326
	Ginnie Mae			301		590
	Alt-A private-label securities			1,568		1,683
	Subprime private-label securities			1,459		1,581
	CMBS			10,976		10,764
	Mortgage revenue bonds			616		609
	Other mortgage-related securities			154		152
		Total		23,809		24,103
Non-mortgage-related securities:
	U.S. Treasury securities			34,856		27,432
	Asset-backed securities			3,242		5,321
		Total		38,098		32,753
Total trading securities			$	61,907	$	56,856
Losses in trading securities held in our portfolio, net			$	1,758	$	2,149

The following table displays information about our net trading gains and losses for the three and six months ended June 30, 2011 and 2010.

				For the Three				For the Six
				Months Ended				Months Ended
				June 30,				June 30,
			2011		2010		2011		2010
			(Dollars in millions)
Net trading gains:
	Mortgage-related securities		$	131	$	612	$	360	$	1,618
	Non-mortgage-related securities			4		28		-		80
		Total	$	135	$	640	$	360	$	1,698
Net trading gains recorded in the period related to
	securities still held at period end:
	Mortgage-related securities		$	131	$	567	$	354	$	1,499
	Non-mortgage-related securities			7		24		8		70
		Total	$	138	$	591	$	362	$	1,569

Available-for-Sale Securities

We measure AFS securities at fair value with unrealized gains and losses recorded as a component of “Other comprehensive income,” net of tax, and we record realized gains and losses from the sale of AFS securities in “Investment gains, net” in our condensed consolidated statements of operations and comprehensive loss.

The following table displays the gross realized gains, losses and proceeds on sales of AFS securities for the three and six months ended June 30, 2011 and 2010.

	For the Three				For the Six
	Months Ended				Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(Dollars in millions)
Gross realized gains	$	73	$	83	$	133	$	348
Gross realized losses		47		59		53		179
Total proceeds⁽¹⁾		839		1,395		1,229		5,574

__________

⁽¹⁾	Excludes proceeds from the initial sale of securities from new portfolio securitizations included in "Note 2, Consolidations and Transfers of Financial Assets." For the three and six months ended June 30, 2010, proceeds were reduced by $455 million and $874 million, respectively, from what was previously disclosed, primarily related to deconsolidated REMICs that should have been presented as proceeds from issuance of long-term debt of consolidated trusts.

The following tables display the amortized cost, gross unrealized gains and losses and fair value by major security type for AFS securities we held as of June 30, 2011 and December 31, 2010.

	As of June 30, 2011
					Gross		Gross
	Total		Gross		Unrealized		Unrealized		Total
	Amortized		Unrealized		Losses -		Losses -		Fair
	Cost⁽¹⁾		Gains		OTTI⁽²⁾		Other⁽³⁾		Value
	(Dollars in millions)
Fannie Mae	$	18,717	$	1,379	$	(28)	$	(3)	$	20,065
Freddie Mac		13,564		971		-		-		14,535
Ginnie Mae		838		128		-		-		966
Alt-A private-label securities		14,913		173		(1,783)		(201)		13,102
Subprime private-label securities		10,905		9		(1,563)		(442)		8,909
CMBS⁽⁴⁾		14,802		144		-		(101)		14,845
Mortgage revenue bonds		10,931		78		(55)		(481)		10,473
Other mortgage-related securities		3,887		118		(18)		(266)		3,721
Total	$	88,557	$	3,000	$	(3,447)	$	(1,494)	$	86,616

	As of December 31, 2010
					Gross		Gross
	Total		Gross		Unrealized		Unrealized		Total
	Amortized		Unrealized		Losses -		Losses -		Fair
	Cost⁽¹⁾		Gains		OTTI⁽²⁾		Other⁽³⁾		Value
	(Dollars in millions)
Fannie Mae	$	21,428	$	1,453	$	(9)	$	(44)	$	22,828
Freddie Mac		15,986		1,010		-		-		16,996
Ginnie Mae		909		130		-		-		1,039
Alt-A private-label securities		15,789		177		(1,791)		(285)		13,890
Subprime private-label securities		11,323		54		(997)		(448)		9,932
CMBS⁽⁴⁾		15,273		25		-		(454)		14,844
Mortgage revenue bonds		11,792		47		(64)		(734)		11,041
Other mortgage-related securities		4,098		106		(44)		(338)		3,822
Total	$	96,598	$	3,002	$	(2,905)	$	(2,303)	$	94,392

__________

⁽¹⁾	Amortized cost includes unamortized premiums, discounts and other cost basis adjustments as well as the credit component of other-than-temporary impairments recognized in our condensed consolidated statements of operations and comprehensive loss.

⁽²⁾	Represents the noncredit component of other-than-temporary impairment losses recorded in "Accumulated other comprehensive loss" as well as cumulative changes in fair value for securities for which we previously recognized the credit component of an other-than-temporary impairment.

⁽³⁾	Represents the gross unrealized losses on securities for which we have not recognized an other-than-temporary impairment.

⁽⁴⁾	Amortized cost includes $763 million and $848 million as of June 30, 2011 and December 31, 2010, respectively, of increase to the carrying amount from previous fair value hedge accounting.

The following tables display additional information regarding gross unrealized losses and fair value by major security type for AFS securities in an unrealized loss position that we held as of June 30, 2011 and December 31, 2010.

	As of June 30, 2011
	Less Than 12				12 Consecutive
	Consecutive Months				Months or Longer
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(Dollars in millions)

Fannie Mae	$	(18)	$	942	$	(13)	$	191
Alt-A private-label securities		(102)		1,724		(1,882)		7,821
Subprime private-label securities		(120)		888		(1,885)		7,707
CMBS		(8)		2,792		(93)		3,092
Mortgage revenue bonds		(78)		2,434		(458)		3,006
Other mortgage-related securities		(10)		398		(274)		1,849
Total	$	(336)	$	9,178	$	(4,605)	$	23,666



	As of December 31, 2010
	Less Than 12				12 Consecutive
	Consecutive Months				Months or Longer
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(Dollars in millions)

Fannie Mae	$	(35)	$	1,461	$	(18)	$	211
Alt-A private-label securities		(104)		1,915		(1,972)		9,388
Subprime private-label securities		(47)		627		(1,398)		8,493
CMBS		(15)		1,774		(439)		10,396
Mortgage revenue bonds		(206)		5,009		(592)		3,129
Other mortgage-related securities		(2)		262		(380)		2,014
Total	$	(409)	$	11,048	$	(4,799)	$	33,631

Other-Than-Temporary Impairments

We recognize the credit component of other-than-temporary impairments of our debt securities in our condensed consolidated statements of operations and comprehensive loss and the noncredit component in “Other comprehensive income” for those securities that we do not intend to sell and for which it is not more likely than not that we will be required to sell before recovery.

The fair value of our securities varies from period to period due to changes in interest rates, in the performance of the underlying collateral and in the credit performance of the underlying issuer, among other factors. $4.6 billion of the $4.9 billion of gross unrealized losses on AFS securities as of June 30, 2011 have existed for a period of 12 consecutive months or longer. Gross unrealized losses on AFS securities as of June 30, 2011 include unrealized losses on securities with other-than-temporary impairment in which a portion of the impairment remains in “Accumulated other comprehensive loss.” The securities with unrealized losses for 12 consecutive months or longer, on average, had a fair value as of June 30, 2011 that was 84% of their amortized cost basis. Based on our review for impairments of AFS securities, which includes an evaluation of the collectibility of cash flows and any intent or requirement to sell the securities, we have concluded that we do not have an intent to sell and we believe it is not more likely than not that we will be required to sell the securities. Additionally, our projections of cash flows indicate that we will recover a portion or the majority of these unrealized losses over the lives of the securities.

The following table displays our net other-than-temporary impairments by major security type recognized in our condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2011 and 2010.

	For the Three				For the Six
	Months Ended				Months Ended
	June 30,⁽¹⁾				June 30,⁽¹⁾
	2011		2010		2011		2010
	(Dollars in millions)
Alt-A private-label securities	$	53	$	120	$	91	$	157
Subprime private-label securities		-		10		-		194
Other		3		7		9		22
Net other-than-temporary impairments	$	56	$	137	$	100	$	373


⁽¹⁾	Certain prior period amounts have been reclassified to conform to the current period presentation.

For the three and six months ended June 30, 2011, we recorded net other-than-temporary impairment of $56 million and $100 million, respectively. The net other-than-temporary impairment charges recorded in the three month period ended June 30, 2011 were primarily driven by an increase in collateral losses on certain Alt-A private-label securities, which resulted in a decrease in the present value of our cash flow projections on these Alt-A private-label securities.

The following table displays activity related to the unrealized credit component on debt securities held by us recognized in earnings for the three and six months ended June 30, 2011 and 2010. A related unrealized non-credit component has been recognized in “Accumulated other comprehensive loss.”

		For the Three Months				For the Six Months
		Ended June 30,				Ended June 30,
		2011		2010			2011		2010
		(Dollars in millions)
Balance, beginning of period		$	8,040	$	8,209	$	8,215	$	8,191
Additions for the credit component on debt securities for which OTTI
	was not previously recognized		-		9		8		15
Additions for credit losses on debt securities for which OTTI was
	previously recognized		56		128		92		358
Reductions for securities no longer in portfolio at period end			-		(1)		-		(52)
Reductions for amortization resulting from increases in cash flows
	expected to be collected over the remaining life of the securities		(220)		(164)		(439)		(331)
Balance, end of period		$	7,876	$	8,181	$	7,876	$	8,181

As of June 30, 2011, those debt securities with other-than-temporary impairment for which we recognized in our condensed consolidated statements of operations and comprehensive loss only the amount of loss related to credit consisted predominantly of Alt-A and subprime securities. We evaluate Alt-A (including option adjustable rate mortgage (“ARM”)) and subprime private-label securities for other-than-temporary impairment by discounting the projected cash flows from econometric models to estimate the portion of loss in value attributable to credit. Separate components of a third-party model project regional home prices, unemployment and interest rates. The model combines these factors with available current information regarding attributes of loans in pools backing the private-label mortgage-related securities to project prepayment speeds, conditional default rates, loss severities and delinquency rates. It incorporates detailed information on security-level subordination levels and cash flow priority of payments to project security level cash flows. We model securities assuming the benefit of those external financial guarantees that we determined are creditworthy. We have recorded other-than-temporary impairments for the three and six months ended June 30, 2011 based on this analysis, with amounts related to credit loss recognized in our condensed consolidated statements of operations and comprehensive loss. For securities we determined were not other-than-temporarily impaired, we concluded that either the bond had no projected credit loss or if we projected a loss, that the present value of expected cash flows was greater than the security's cost basis.

The following table displays the modeled attributes, including default rates and severities, which are used to determine whether our senior interests in certain non-agency mortgage-related securities will experience a cash shortfall. Assumption of voluntary prepayment rates is also an input to the present value of expected losses.

			As of June 30, 2011
					Alt-A
			Subprime		Option ARM			Fixed Rate			Variable Rate			Hybrid Rate
			(Dollars in millions)
Vintage Year
2004 & Prior:
	Unpaid principal balance	$	2,109		$	498		$	3,614		$	516		$	2,379
	Weighted average collateral default⁽¹⁾		37.9	%		38.5	%		11.4	%		32.9	%		15.8	%
	Weighted average collateral severities⁽²⁾		58.5	%		50.6	%		45.5	%		39.9	%		35.6	%
	Weighted average voluntary prepayment rates⁽³⁾		6.4	%		9.9	%		9.9	%		8.2	%		9.9	%
	Average credit enhancement⁽⁴⁾		51.2	%		17.3	%		12.0	%		22.1	%		10.6	%
2005
	Unpaid principal balance	$	188		$	1,348		$	1,231		$	553		$	2,452
	Weighted average collateral default⁽¹⁾		73.3	%		59.3	%		40.7	%		55.7	%		39.2	%
	Weighted average collateral severities⁽²⁾		70.8	%		58.6	%		60.2	%		56.3	%		46.1	%
	Weighted average voluntary prepayment rates⁽³⁾		2.3	%		5.4	%		7.3	%		6.6	%		7.8	%
	Average credit enhancement⁽⁴⁾		64.9	%		28.2	%		1.8	%		18.6	%		5.9	%
2006
	Unpaid principal balance	$	12,044		$	1,289		$	585		$	1,672		$	1,786
	Weighted average collateral default⁽¹⁾		77.8	%		74.6	%		41.7	%		59.0	%		32.7	%
	Weighted average collateral severities⁽²⁾		71.2	%		61.8	%		64.0	%		57.8	%		49.2	%
	Weighted average voluntary prepayment rates⁽³⁾		2.2	%		2.8	%		6.8	%		5.9	%		8.3	%
	Average credit enhancement⁽⁴⁾		18.8	%		21.8	%		1.2	%		0.9	%		1.2	%
2007 & After:
	Unpaid principal balance	$	624		$	-		$	-		$	-		$	122
	Weighted average collateral default⁽¹⁾		79.5	%		N/A			N/A			N/A			43.5	%
	Weighted average collateral severities⁽²⁾		66.9	%		N/A			N/A			N/A			55.7	%
	Weighted average voluntary prepayment rates⁽³⁾		1.9	%		N/A			N/A			N/A			6.9	%
	Average credit enhancement⁽⁴⁾		34.1	%		N/A			N/A			N/A			26.1	%
Total
	Unpaid principal balance	$	14,965		$	3,135		$	5,430		$	2,741		$	6,739
	Weighted average collateral default⁽¹⁾		72.2	%		62.3	%		21.3	%		53.4	%		29.3	%
	Weighted average collateral severities⁽²⁾		69.3	%		58.6	%		50.8	%		54.1	%		43.4	%
	Weighted average voluntary prepayment rates⁽³⁾		2.8	%		5.0	%		9.0	%		6.5	%		8.7	%
	Average credit enhancement⁽⁴⁾		24.6	%		23.8	%		8.6	%		8.5	%		6.7	%

__________
⁽¹⁾	The expected remaining cumulative default rate of the collateral pool backing the securities, as a percentage of the current
	collateral unpaid principal balance, weighted by security unpaid principal balance.
⁽²⁾	The expected remaining loss given default of the collateral pool backing the securities, calculated as the ratio of remaining
	cumulative loss divided by cumulative defaults, weighted by security unpaid principal balance.
⁽³⁾	The average monthly voluntary prepayment rate, weighted by security unpaid principal balance.
⁽⁴⁾	The average percent current credit enhancement provided by subordination of other securities. Excludes excess interest
	projections and monoline bond insurance.

Maturity Information

The following table displays the amortized cost and fair value of our AFS securities by major security type and remaining maturity, assuming no principal prepayments, as of June 30, 2011. 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 June 30, 2011
									After One Year				After Five Years
	Total		Total		One Year or Less				Through Five Years				Through Ten Years				After Ten Years
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value		Cost		Value		Cost		Value
		(Dollars in millions)
Fannie Mae	$	18,717	$	20,065	$	-	$	-	$	1	$	1	$	3,363	$	3,570	$	15,353	$	16,494
Freddie Mac		13,564		14,535		2		2		36		39		1,404		1,516		12,122		12,978
Ginnie Mae		838		966		-		-		-		-		5		6		833		960
Alt-A private-label securities		14,913		13,102		-		-		1		1		264		268		14,648		12,833
Subprime private-label securities		10,905		8,909		-		-		-		-		-		-		10,905		8,909
CMBS		14,802		14,845		-		-		3,631		3,693		10,560		10,556		611		596
Mortgage revenue bonds		10,931		10,473		58		58		364		374		756		765		9,753		9,276
Other mortgage-related securities		3,887		3,721		-		-		-		-		-		14		3,887		3,707
Total	$	88,557	$	86,616	$	60	$	60	$	4,033	$	4,108	$	16,352	$	16,695	$	68,112	$	65,753

Accumulated Other Comprehensive Loss

The following table displays our accumulated other comprehensive loss by major categories as of June 30, 2011 and December 31, 2010.

		As of
		June 30,		December 31,
		2011		2010
		(Dollars in millions)
Net unrealized gains on available-for-sale securities for which
	we have not recorded other-than-temporary impairment, net of tax	$	862	$	304
Net unrealized losses on available-for-sale securities for which we have
	recorded other-than-temporary impairment, net of tax		(2,123)		(1,736)
Other			(238)		(250)
	Accumulated other comprehensive loss	$	(1,499)	$	(1,682)

The following table displays the activity in other comprehensive income, net of tax, by major categories for the three and six months ended June 30, 2011 and 2010.

				For the Three				For the Six
				Months Ended				Months Ended
				June 30,				June 30,
				2011		2010		2011		2010
				(Dollars in millions)
Comprehensive income (loss):
	Net loss			$	(2,892)	$	(1,223)	$	(9,363)	$	(12,752)
	Other comprehensive income, net of tax:
		Changes in net unrealized losses on available-for-sale
			securities (net of tax benefit of $19 and tax of $799,
			respectively, for the three months ended and net of tax
			of $68 and $1,509 respectively, for the six months ended)		(34)		1,484		127		2,802
		Reclassification adjustment for other-than-temporary
			impairments recognized in net loss (net of tax of $15
			and $45, respectively, for the three months ended and
			$28 and $126, respectively, for the six months ended)		40		92		72		247
		Reclassification adjustment for (gains) losses included in
			net loss (net of tax of $3 and tax benefit of $50,
			respectively for the three months ended and net of tax of $11 and $6, respectively, for the six months ended)		(7)		91		(21)		(12)
		Other			3		3		5		5
	Other comprehensive income				2		1,670		183		3,042
	Total comprehensive income (loss)			$	(2,890)	$	447	$	(9,180)	$	(9,710)

Derivative Instruments

6 Months Ended

Jun. 30, 2011

Notes to Consolidated Financial Statements

Derivative Instruments

9. Derivative Instruments

Derivative instruments are an integral part of our strategy in managing interest rate risk. Derivative instruments may be privately negotiated contracts, which are often referred to as over-the-counter derivatives, or they may be listed and traded on an exchange. We typically do not settle the notional amount of our risk management derivatives; rather, notional amounts provide the basis for calculating actual payments or settlement amounts. The derivatives we use for interest rate risk management purposes consist primarily of interest rate swaps, interest rate options, foreign currency swaps and futures.

We enter into forward purchase and sale commitments that lock in the future delivery of mortgage loans and mortgage-related securities at a fixed price or yield. Certain commitments to purchase mortgage loans and purchase or sell mortgage-related securities meet the criteria of a derivative. We typically settle the notional amount of our mortgage commitments that are accounted for as derivatives.

We recognize all derivatives as either assets or liabilities in our condensed consolidated balance sheets at their fair value on a trade date basis. Fair value amounts, which are netted to the extent a legal right of offset exists and is enforceable by law at the counterparty level and are inclusive of cash collateral posted or received, are recorded in “Other assets” or “Other liabilities” in our condensed consolidated balance sheets. We record all derivative gains and losses, including accrued interest, in “Fair value gains (losses), net” in our condensed consolidated statements of operations and comprehensive loss.

Notional and Fair Value Position of our Derivatives

The following table displays the notional amount and estimated fair value of our asset and liability derivative instruments as of June 30, 2011 and December 31, 2010.

			As of June 30, 2011								As of December 31, 2010
			Asset Derivatives				Liability Derivatives				Asset Derivatives				Liability Derivatives
			Notional		Estimated		Notional		Estimated		Notional		Estimated		Notional		Estimated
			Amount		Fair Value		Amount		Fair Value		Amount		Fair Value		Amount		Fair Value
			(Dollars in millions)
Risk management derivatives:
Swaps:
	Pay-fixed		$	38,027	$	878	$	167,057	$	(9,711)	$	49,085	$	1,812	$	228,142	$	(14,115)
	Receive-fixed			149,566		4,989		11,585		(95)		172,174		6,493		52,003		(578)
	Basis			902		44		1,650		(2)		435		29		50		-
	Foreign currency			1,241		191		297		(47)		1,274		164		286		(51)
Swaptions:
	Pay-fixed			71,150		471		56,050		(1,088)		66,200		482		30,950		(1,773)
	Receive-fixed			47,120		3,657		56,050		(1,352)		48,340		4,992		30,275		(673)
Interest rate caps				7,000		6		-		-		7,000		24		-		-
Other⁽¹⁾				689		56		637		(3)		909		75		25		(1)
	Total gross risk management derivatives			315,695		10,292		293,326		(12,298)		345,417		14,071		341,731		(17,191)
	Accrued interest receivable (payable)			-		798		-		(1,392)		-		1,288		-		(1,805)
	Netting adjustment⁽²⁾			-		(10,586)		-		13,345		-		(15,175)		-		18,023
		Total net risk management derivatives	$	315,695	$	504	$	293,326	$	(345)	$	345,417	$	184	$	341,731	$	(973)

Mortgage commitment derivatives:
	Mortgage commitments to purchase whole loans		$	2,388	$	5	$	3,178	$	(19)	$	2,880	$	19	$	4,435	$	(105)
	Forward contracts to purchase mortgage-related
		securities		8,866		75		18,991		(111)		19,535		123		27,697		(468)
	Forward contracts to sell mortgage-related securities			17,095		84		15,679		(117)		40,761		811		24,562		(169)
		Total mortgage commitment derivatives	$	28,349	$	164	$	37,848	$	(247)	$	63,176	$	953	$	56,694	$	(742)
		Derivatives at fair value	$	344,044	$	668	$	331,174	$	(592)	$	408,593	$	1,137	$	398,425	$	(1,715)

__________

⁽¹⁾	Includes futures, swap credit enhancements and mortgage insurance contracts that we account for as derivatives. The mortgage insurance contracts have payment provisions that are not based on a notional amount.

⁽²⁾	The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting agreements to settle with the same counterparty on a net basis, as well as cash collateral receivable and payable. Cash collateral receivable was $2.9 billion and $3.5 billion as of June 30, 2011 and December 31, 2010, respectively. Cash collateral payable was $149 million and $604 million as of June 30, 2011 and December 31, 2010, respectively.

A majority of our derivative instruments contain provisions that require our senior unsecured debt to maintain a minimum credit rating from Standard & Poor's (“S&P”), Moody's Investors Services, Inc. (“Moody's”) or Fitch Ratings (“Fitch”). If our senior unsecured debt were to fall below established thresholds in our governing agreements, which range from A- to BBB+, we would be in violation of these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivatives with credit-risk-related contingent features that were in a net liability position as of June 30, 2011 was $3.1 billion for which we posted collateral of $2.9 billion in the normal course of business. Had the credit-risk-related contingency features underlying these agreements been triggered as of June 30, 2011, we would have been required to post an additional $200 million of collateral to our counterparties.

The following table displays, by type of derivative instrument, the fair value gains and losses, net on our derivatives for the three and six months ended June 30, 2011 and 2010.


		For the Three Months				For the Six Months
		Ended June 30,				Ended June 30,
		2011		2010		2011		2010
		(Dollars in millions)
Risk management derivatives:
Swaps:
	Pay-fixed	$	(5,474)	$	(10,898)	$	(4,872)	$	(16,777)
	Receive-fixed		2,784		7,847		2,528		12,516
	Basis		10		21		29		30
	Foreign currency		53		(8)		83		(11)
Swaptions:
	Pay-fixed		327		(425)		272		(1,359)
	Receive-fixed		733		3,655		500		3,682
Interest rate caps			(14)		(43)		(18)		(99)
Other⁽¹⁾			(35)		31		(22)		37
	Total risk management derivatives fair value gains (losses), net		(1,616)		180		(1,500)		(1,981)
Mortgage commitment derivatives fair value losses, net			(61)		(577)		(38)		(1,178)
	Total derivatives fair value losses, net	$	(1,677)	$	(397)	$	(1,538)	$	(3,159)

__________
⁽¹⁾	Includes futures, swap credit enhancements and mortgage insurance contracts.

Derivative Counterparty Credit Exposure

Our derivative counterparty credit exposure relates principally to interest rate and foreign currency derivative contracts. We are exposed to the risk that a counterparty in a derivative transaction will default on payments due to us. If there is a default, we may need to acquire a replacement derivative from a different counterparty at a higher cost or may be unable to find a suitable replacement. We estimate our exposure to credit loss on derivative instruments by calculating the replacement cost, on a present value basis, to settle at current market prices all outstanding derivative contracts in a net gain position by counterparty where the right of legal offset exists, such as master netting agreements, and by transaction where the right of legal offset does not exist. Typically, we seek to manage credit exposure by contracting with experienced counterparties that are rated A- (or its equivalent) or better by S&P, Moody's or Fitch. We also manage our exposure by requiring counterparties to post collateral. The collateral includes cash, U.S. Treasury securities, agency debt and agency mortgage-related securities.

The table below displays our credit exposure on outstanding risk management derivative instruments in a gain position by counterparty credit ratings, as well as the notional amount outstanding and the number of counterparties for all risk management derivatives as of June 30, 2011 and December 31, 2010.

		As of June 30, 2011
		Credit Rating⁽¹⁾
		AA+/AA/AA-		A+/A		Subtotal ⁽²⁾		Other⁽³⁾		Total
		(Dollars in millions)
Credit loss exposure ⁽⁴⁾		$	103	$	336	$	439	$	56	$	495
Less: Collateral held⁽⁵⁾			76		287		363		-		363
Exposure net of collateral		$	27	$	49	$	76	$	56	$	132
Additional information:
	Notional amount	$	167,459	$	439,345	$	606,804	$	2,217	$	609,021
	Number of counterparties		7		8		15

		As of December 31, 2010
		Credit Rating⁽¹⁾
		AA+/AA/AA-		A+/A		Subtotal ⁽²⁾		Other⁽³⁾		Total
		(Dollars in millions)
Credit loss exposure ⁽⁴⁾		$	350	$	325	$	675	$	75	$	750
Less: Collateral held⁽⁵⁾			273		325		598		-		598
Exposure net of collateral		$	77	$	-	$	77	$	75	$	152
Additional information:
	Notional amount	$	208,898	$	476,766	$	685,664	$	1,484	$	687,148
	Number of counterparties		7		8		15

__________

⁽¹⁾	We manage collateral requirements based on the lower credit rating of the legal entity, as issued by S&P and Moody’s. The credit rating reflects the equivalent S&P's rating for any ratings based on Moody’s scale.
⁽²⁾	We had exposure to 3 interest rate and foreign currency derivative counterparties in a net gain position as of both June 30, 2011 and December 31, 2010. Those interest rate and foreign currency derivatives had notional balances of $154.9 billion and $106.5 billion as of June 30, 2011 and December 31, 2010, respectively.
⁽³⁾	Includes defined benefit mortgage insurance contracts and swap credit enhancements accounted for as derivatives where the right of legal offset does not exist. Also includes exchange-traded derivatives, such as futures and interest rate swaps, which are settled daily through a clearinghouse.
⁽⁴⁾	Represents the exposure to credit loss on derivative instruments, which we estimate using the fair value of all outstanding derivative contracts in a gain position. We net derivative gains and losses with the same counterparty where a legal right of offset exists under an enforceable master netting agreement. This table excludes mortgage commitments accounted for as derivatives.
⁽⁵⁾	Represents both cash and non-cash collateral posted by our counterparties to us. Does not include collateral held in excess of exposure. We reduce the value of non-cash collateral in accordance with the counterparty agreements to help ensure recovery of any loss through the disposition of the collateral.

Segment Reporting

6 Months Ended

Jun. 30, 2011

Notes to Consolidated Financial Statements

Segment Reporting

10. Segment Reporting

Our three reportable segments are: Single-Family, Multifamily, and Capital Markets. We use these three segments to generate revenue and manage business risk, and each segment is based on the type of business activities it performs. We are working on reorganizing our company by function rather than by business in order to improve our operational efficiencies and effectiveness. In future periods, we may change some of our management reporting and how we report our business segment results.

Under our segment reporting, the sum of the results for our three business segments does not equal our condensed consolidated statements of operations and comprehensive loss, as we separate the activity related to our consolidated trusts from the results generated by our three segments. Our segment financial results include directly attributable revenues and expenses. Additionally, we allocate to each of our segments: (1) capital using FHFA minimum capital requirements adjusted for over- or under-capitalization; (2) indirect administrative costs; and (3) a provision or benefit for federal income taxes. In addition, we allocate intracompany guaranty fee income as a charge from the Single-Family and Multifamily segments to Capital Markets for managing the credit risk on mortgage loans held by the Capital Markets group. We also include an eliminations/adjustments category to reconcile our business segment results and the activity related to our consolidated trusts to net loss in our condensed consolidated statements of operations and comprehensive loss.

The following tables display our segment results for the three and six months ended June 30, 2011 and 2010.

			For the Three Months Ended June 30, 2011
			Business Segments						Other Activity/Reconciling Items
			Single-				Capital		Consolidated			Eliminations/			Total
			Family		Multifamily		Markets		Trusts⁽¹⁾			Adjustments⁽²⁾			Results
				(Dollars in millions)

Net interest income (expense)			$	(680)	$	(11)	$	3,867	$	1,314		$	482	⁽³⁾	$	4,972
Provision for loan losses				(5,677)		(125)		-		-			-			(5,802)
Net interest income (expense) after provision
	for loan losses			(6,357)		(136)		3,867		1,314			482			(830)
Guaranty fee income (expense)				1,880		216		(391)		(1,116)	⁽⁴⁾		(539)	⁽⁴⁾		50	⁽⁴⁾
Investment gains (losses), net				(6)		1		918		(143)			(599)	⁽⁵⁾		171
Net other-than-temporary impairments				-		-		(55)		(1)			-			(56)
Fair value losses, net				(3)		-		(1,507)		(72)			(52)	⁽⁶⁾		(1,634)
Debt extinguishment gains (losses), net				-		-		(55)		12			-			(43)
Gains from partnership investments				-		34		-		-			1			35	⁽⁷⁾
Fee and other income (expenses)				114		57		109		(63)			(2)			215
Administrative expenses				(400)		(64)		(105)		-			-			(569)
Benefit (provision) for guaranty losses				(737)		2		-		-			-			(735)
Foreclosed property income (expense)				481		(3)		-		-			-			478
Other income (expenses)				(77)		36		(9)		-			(17)			(67)
Income (loss) before federal income taxes				(5,105)		143		2,772		(69)			(726)			(2,985)
Benefit (provision) for federal income taxes				109		(56)		40		-			-			93
	Net income (loss)			(4,996)		87		2,812		(69)			(726)			(2,892)
	Net income attributable to noncontrolling
		interest		-		-		-		-			(1)	⁽⁸⁾		(1)
	Net income (loss) attributable to Fannie Mae		$	(4,996)	$	87	$	2,812	$	(69)		$	(727)		$	(2,893)


			For the Six Months Ended June 30, 2011
			Business Segments						Other Activity/Reconciling Items
			Single-				Capital		Consolidated			Eliminations/			Total
			Family		Multifamily		Markets		Trusts⁽¹⁾			Adjustments⁽²⁾			Results
				(Dollars in millions)

Net interest income (expense)			$	(1,578)	$	(20)	$	7,577	$	2,888		$	1,065	⁽³⁾	$	9,932
Provision for loan losses				(16,289)		(100)		-		-			-			(16,389)
Net interest income (expense) after provision
	for loan losses			(17,867)		(120)		7,577		2,888			1,065			(6,457)
Guaranty fee income (expense)				3,751		425		(790)		(2,226)	⁽⁴⁾		(1,060)	⁽⁴⁾		100	⁽⁴⁾
Investment gains (losses), net				(5)		5		1,788		(169)			(1,373)	⁽⁵⁾		246
Net other-than-temporary impairments				-		-		(99)		(1)			-			(100)
Fair value losses, net				(3)		-		(1,289)		(105)			52	⁽⁶⁾		(1,345)
Debt extinguishment gains (losses), net				-		-		(79)		49			-			(30)
Gains from partnership investments				-		22		-		-			1			23	⁽⁷⁾
Fee and other income (expense)				261		115		184		(155)			(3)			402
Administrative expenses				(816)		(132)		(226)		-			-			(1,174)
Benefit (provision) for guaranty losses				(743)		41		-		-			-			(702)
Foreclosed property expense				(7)		(3)		-		-			-			(10)
Other income (expenses)				(395)		42		(18)		-			(36)			(407)
Income (loss) before federal income taxes				(15,824)		395		7,048		281			(1,354)			(9,454)
Benefit (provision) for federal income taxes				107		(61)		45		-			-			91
	Net income (loss)			(15,717)		334		7,093		281			(1,354)			(9,363)
	Net income attributable to noncontrolling
		interest		-		-		-		-			(1)	⁽⁸⁾		(1)
	Net income (loss) attributable to Fannie Mae		$	(15,717)	$	334	$	7,093	$	281		$	(1,355)		$	(9,364)

			For the Three Months Ended June 30, 2010
			Business Segments						Other Activity/Reconciling Items
			Single-				Capital		Consolidated			Eliminations/			Total
			Family		Multifamily		Markets		Trusts⁽¹⁾			Adjustments⁽²⁾			Results
				(Dollars in millions)

Net interest income (expense)			$	(1,385)	$	5	$	3,549	$	1,282		$	756	⁽³⁾	$	4,207
Benefit (provision) for loan losses				(4,319)		24		-		-			-			(4,295)
Net interest income (expense) after provision
	for loan losses			(5,704)		29		3,549		1,282			756			(88)
Guaranty fee income (expense)				1,795		195		(360)		(1,130)	⁽⁴⁾		(448)	⁽⁴⁾		52	⁽⁴⁾
Investment gains (losses), net				2		(1)		779		(28)			(729)	⁽⁵⁾		23
Net other-than-temporary impairments				-		-		(137)		-			-			(137)
Fair value gains, net				-		-		631		11			(339)	⁽⁶⁾		303
Debt extinguishment losses, net				-		-		(128)		(31)			-			(159)
Losses from partnership investments				-		(22)		-		-			(4)			(26)	⁽⁷⁾
Fee and other income (expense)				85		28		136		(7)			-			242
Administrative expenses				(436)		(93)		(141)		-			-			(670)
Benefit (provision) for guaranty losses				(73)		4		-		-			-			(69)
Foreclosed property expense				(479)		(8)		-		-			-			(487)
Other income (expenses)				(259)		(11)		91		-			(19)			(198)
Income (loss) before federal income taxes				(5,069)		121		4,420		97			(783)			(1,214)
Benefit (provision) for federal income taxes				1		(2)		(8)		-			-			(9)
	Net income (loss)			(5,068)		119		4,412		97			(783)			(1,223)
	Less: Net loss attributable to noncontrolling
		interests		-		-		-		-			5	⁽⁸⁾		5
	Net income (loss) attributable to Fannie Mae		$	(5,068)	$	119	$	4,412	$	97		$	(778)		$	(1,218)


			For the Six Months Ended June 30, 2010
			Business Segments						Other Activity/Reconciling Items
			Single-				Capital		Consolidated			Eliminations/			Total
			Family		Multifamily		Markets		Trusts⁽¹⁾			Adjustments⁽²⁾			Results
				(Dollars in millions)

Net interest income (expense)			$	(3,330)	$	9	$	6,606	$	2,521		$	1,190	⁽³⁾	$	6,996
Benefit (provision) for loan losses				(16,264)		30		-		-			-			(16,234)
Net interest income (expense) after provision
	for loan losses			(19,594)		39		6,606		2,521			1,190			(9,238)
Guaranty fee income (expense)				3,563		389		(639)		(2,327)	⁽⁴⁾		(880)	⁽⁴⁾		106	⁽⁴⁾
Investment gains (losses), net				4		(1)		1,571		(183)			(1,202)	⁽⁵⁾		189
Net other-than-temporary impairments				-		-		(373)		-			-			(373)
Fair value losses, net				-		-		(555)		(24)			(823)	⁽⁶⁾		(1,402)
Debt extinguishment losses, net				-		-		(183)		(100)			-			(283)
Losses from partnership investments				-		(80)		-		-			(4)			(84)	⁽⁷⁾
Fee and other income (expense)				132		63		240		(14)			-			421
Administrative expenses				(826)		(192)		(257)		-			-			(1,275)
Benefit (provision) for guaranty losses				(84)		51		-		-			-			(33)
Foreclosed property expense				(449)		(19)		-		-			-			(468)
Other income (expenses)				(431)		(17)		118		-			(40)			(370)
Income (loss) before federal income taxes				(17,685)		233		6,528		(127)			(1,759)			(12,810)
Benefit (provision) for federal income taxes				52		(15)		21		-			-			58
	Net income (loss)			(17,633)		218		6,549		(127)			(1,759)			(12,752)
	Less: Net loss attributable to noncontrolling
		interests		-		-		-		-			4	⁽⁸⁾		4
	Net income (loss) attributable to Fannie Mae		$	(17,633)	$	218	$	6,549	$	(127)		$	(1,755)		$	(12,748)

__________

⁽¹⁾	Represents activity related to the assets and liabilities of consolidated trusts in our condensed consolidated balance sheets.
⁽²⁾	Represents the elimination of intercompany transactions occurring between the three business segments and our consolidated trusts, as well as other adjustments to reconcile to our condensed consolidated results.
⁽³⁾	Represents the amortization expense of cost basis adjustments on securities that we own in our portfolio that on a GAAP basis are eliminated.
⁽⁴⁾	Represents the guaranty fees paid from consolidated trusts to the Single-Family and Multifamily segments. The adjustment to guaranty fee income in the Eliminations/Adjustments column represents the elimination of the amortization of deferred cash fees related to consolidated trusts that were re-established for segment reporting. Total guaranty fee income is included in fee and other income in our condensed consolidated statements of operations and comprehensive loss.
⁽⁵⁾	Primarily represents the removal of realized gains and losses on sales of Fannie Mae MBS classified as available-for-sale securities that are issued by consolidated trusts and retained in the Capital Markets portfolio. The adjustment also includes the removal of securitization gains (losses) recognized in the Capital Markets segment relating to portfolio securitization transactions that do not qualify for sale accounting under GAAP.
⁽⁶⁾	Represents the removal of fair value adjustments on consolidated Fannie Mae MBS classified as trading that are retained in the Capital Markets portfolio.
⁽⁷⁾	Gains (losses) from partnership investments are included in other expenses in our condensed consolidated statements of operations and comprehensive loss.
⁽⁸⁾	Represents the adjustment from equity method accounting to consolidation accounting for partnership investments that are consolidated in our condensed consolidated balance sheets.

Fair Value

6 Months Ended

Jun. 30, 2011

Notes to Consolidated Financial Statements

Fair Value

13. 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 expands disclosures around fair value measurements. This guidance applies whenever other accounting standards require or permit assets or liabilities to be measured at fair value. The guidance establishes a three-level fair value hierarchy that prioritizes the inputs into the valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority, Level 1, to measurements based on unadjusted quoted prices in active markets for identical assets or liabilities. The next highest priority, Level 2, is given to measurements of assets and liabilities based on limited observable inputs or observable inputs for similar assets and liabilities. The lowest priority, Level 3, is given to measurements based on unobservable inputs.

Recurring Changes in Fair Value

The following tables display our assets and liabilities measured in our 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 as of June 30, 2011 and December 31, 2010. Specifically, total assets measured at fair value on a recurring basis and classified as Level 3 were $37.0 billion, or 1% of “Total assets,” and $39.0 billion, or 1% of “Total assets,” in our condensed consolidated balance sheets as of June 30, 2011 and December 31, 2010, respectively.

			Fair Value Measurements as of June 30, 2011
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs		Netting		Estimated
			(Level 1)		(Level 2)		(Level 3)		Adjustment⁽¹⁾		Fair Value
				(Dollars in millions)
Assets:
Cash equivalents⁽²⁾			$	2,000	$	-	$	-	$	-	$	2,000
Trading securities:
	Mortgage-related securities:
		Fannie Mae		-		5,664		1,679		-		7,343
		Freddie Mac		-		1,392		-		-		1,392
		Ginnie Mae		-		301		-		-		301
		Alt-A private-label securities		-		1,442		126		-		1,568
		Subprime private-label securities		-		-		1,459		-		1,459
		CMBS		-		10,976		-		-		10,976
		Mortgage revenue bonds		-		-		616		-		616
		Other		-		-		154		-		154
	Non-mortgage-related securities:
		U.S. Treasury securities		34,856		-		-		-		34,856
		Asset-backed securities		-		3,242		-		-		3,242
Total trading securities				34,856		23,017		4,034		-		61,907
Available-for-sale securities:
	Mortgage-related securities:
		Fannie Mae		-		19,430		635		-		20,065
		Freddie Mac		-		14,523		12		-		14,535
		Ginnie Mae		-		966		-		-		966
		Alt-A private-label securities		-		6,450		6,652		-		13,102
		Subprime private-label securities		-		-		8,909		-		8,909
		CMBS		-		14,845		-		-		14,845
		Mortgage revenue bonds		-		9		10,464		-		10,473
		Other		-		14		3,707		-		3,721
Total available-for-sale securities				-		56,237		30,379		-		86,616
Mortgage loans of consolidated trusts				-		719		2,365		-		3,084
Other assets:
	Risk management derivatives:
		Swaps		-		6,752		148		-		6,900
		Swaptions		-		4,128		-		-		4,128
		Interest rate caps		-		6		-		-		6
		Other		-		-		56		-		56
		Netting adjustment		-		-		-		(10,586)		(10,586)
	Mortgage commitment derivatives			-		158		6		-		164
Total other assets				-		11,044		210		(10,586)		668
		Total assets at fair value	$	36,856	$	91,017	$	36,988	$	(10,586)	$	154,275

			Fair Value Measurements as of June 30, 2011
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs		Netting		Estimated
			(Level 1)		(Level 2)		(Level 3)		Adjustment⁽¹⁾		Fair Value

				(Dollars in millions)

Liabilities:
Long-term debt:
	Of Fannie Mae:
		Senior fixed	$	-	$	460	$	-	$	-	$	460
		Senior floating		-		-		402		-		402
	Total of Fannie Mae			-		460		402		-		862
	Of consolidated trusts			-		2,627		646		-		3,273
Total long-term debt				-		3,087		1,048		-		4,135
Other liabilities:
	Risk management derivatives:
		Swaps		-		11,146		101		-		11,247
		Swaptions		-		2,440		-		-		2,440
		Other		3		-		-		-		3
		Netting adjustment		-		-		-		(13,345)		(13,345)
	Mortgage commitment derivatives			-		217		30		-		247
Total other liabilities				3		13,803		131		(13,345)		592
		Total liabilities at fair value	$	3	$	16,890	$	1,179	$	(13,345)	$	4,727

			Fair Value Measurements as of December 31, 2010
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs		Netting		Estimated
			(Level 1)		(Level 2)		(Level 3)		Adjustment⁽¹⁾		Fair Value
				(Dollars in millions)
Assets:
Cash equivalents⁽²⁾			$	4,049	$	2,300	$	-	$	-	$	6,349
Trading securities:
	Mortgage-related securities:
		Fannie Mae		-		5,196		2,202		-		7,398
		Freddie Mac		-		1,326		-		-		1,326
		Ginnie Mae		-		590		-		-		590
		Alt-A private-label securities		-		1,663		20		-		1,683
		Subprime private-label securities		-		-		1,581		-		1,581
		CMBS		-		10,764		-		-		10,764
		Mortgage revenue bonds		-		-		609		-		609
		Other		-		-		152		-		152
	Non-mortgage-related securities:
		U.S. Treasury securities		27,432		-		-		-		27,432
		Asset-backed securities		-		5,309		12		-		5,321
Total trading securities				27,432		24,848		4,576		-		56,856
Available-for-sale securities:
	Mortgage-related securities:
		Fannie Mae		-		22,714		114		-		22,828
		Freddie Mac		-		16,993		3		-		16,996
		Ginnie Mae		-		1,039		-		-		1,039
		Alt-A private-label securities		-		6,841		7,049		-		13,890
		Subprime private-label securities		-		-		9,932		-		9,932
		CMBS		-		14,844		-		-		14,844
		Mortgage revenue bonds		-		11		11,030		-		11,041
		Other		-		16		3,806		-		3,822
Total available-for-sale securities				-		62,458		31,934		-		94,392
Mortgage loans of consolidated trusts				-		755		2,207		-		2,962
Other assets:
	Risk management derivatives:
		Swaps		-		9,623		163		-		9,786
		Swaptions		-		5,474		-		-		5,474
		Interest rate caps		-		24		-		-		24
		Other		3		-		72		-		75
		Netting adjustment		-		-		-		(15,175)		(15,175)
	Mortgage commitment derivatives			-		941		12		-		953
Total other assets				3		16,062		247		(15,175)		1,137
		Total assets at fair value	$	31,484	$	106,423	$	38,964	$	(15,175)	$	161,696

			Fair Value Measurements as of December 31, 2010
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs		Netting		Estimated
			(Level 1)		(Level 2)		(Level 3)		Adjustment⁽¹⁾		Fair Value

				(Dollars in millions)

Liabilities:
Long-term debt:
	Of Fannie Mae:
		Senior fixed	$	-	$	472	$	-	$	-	$	472
		Senior floating		-		-		421		-		421
	Total of Fannie Mae			-		472		421		-		893
	Of consolidated trusts			-		1,644		627		-		2,271
Total long-term debt				-		2,116		1,048		-		3,164
Other liabilities:
	Risk management derivatives:
		Swaps		-		16,436		113		-		16,549
		Swaptions		-		2,446		-		-		2,446
		Other		1		-		-		-		1
		Netting adjustment		-		-		-		(18,023)		(18,023)
	Mortgage commitment derivatives			-		712		30		-		742
Total other liabilities				1		19,594		143		(18,023)		1,715
		Total liabilities at fair value	$	1	$	21,710	$	1,191	$	(18,023)	$	4,879

__________

⁽¹⁾	Derivative contracts are reported on a gross basis by level. The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting agreements to settle with the same counterparty on a net basis, as well as cash collateral.
⁽²⁾	Cash equivalents is comprised of U.S. Treasuries that are classified as Level 1 and money market funds that are classified as Level 2.

The following tables display a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2011 and 2010. The tables also display gains and losses due to changes in fair value, including both realized and unrealized gains and losses, recognized in our condensed consolidated statements of operations and comprehensive loss for Level 3 assets and liabilities for the three and six months ended June 30, 2011 and 2010. When assets and liabilities are transferred between levels, we recognize the transfer as of the end of the period.

				Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
				For the Three Months Ended June 30, 2011
																								Net Unrealized Gains (Losses) Included in Net Loss Related to Assets and Liabilities Still Held as of June 30, 2011⁽⁴⁾
						Total Gains or (Losses) (Realized/Unrealized)
				Balance, April 1, 2011		Included in Net Loss		Included in Other Comprehensive Income		Purchases⁽¹⁾			Sales⁽¹⁾	Issuances⁽²⁾		Settlements⁽²⁾		Transfers out of Level 3⁽³⁾		Transfers into Level 3⁽³⁾		Balance, June 30, 2011
				(Dollars in millions)
Trading securities:
	Mortgage-related:
		Fannie Mae		$	1,651	$	1	$	-	$	124	$	-	$	-	$	(97)	$	-	$	-	$	1,679	$	2
		Alt-A private-label
			securities		20		1		-		-		-		-		(1)		-		106		126		2
		Subprime private-label
			securities		1,547		(41)		-		-		-		-		(47)		-		-		1,459		(41)
		Mortgage revenue bonds			606		21		-		-		-		-		(11)		-		-		616		21
		Other			155		1		-		-		-		-		(2)		-		-		154		1
	Non-mortgage-related:
		Asset-backed securities			2		-		-		-		-		-		(2)		-		-		-		-
Total trading securities					3,981		(17)		-		124		-		-		(160)		-		106		4,034		(15)

Available-for-sale securities:
	Mortgage-related:
		Fannie Mae			546		-		8		473		(24)		-		-		(368)		-		635		-
		Freddie Mac			12		-		-		-		-		-		-		-		-		12		-
		Alt-A private-label
			securities		7,236		3		(26)		-		-		-		(217)		(747)		403		6,652		-
		Subprime private-label
			securities		9,660		130		(547)		-		-		-		(334)		-		-		8,909		-
		Mortgage revenue bonds			10,532		(1)		273		-		(64)		-		(276)		-		-		10,464		-
		Other			3,776		2		40		-		-		-		(111)		-		-		3,707		-
Total available-for-sale
	securities				31,762		134		(252)		473		(88)		-		(938)		(1,115)		403		30,379		-

Mortgage loans of
	consolidated trusts				2,221		19		-		42		-		-		(71)		(31)		185		2,365		19
Net derivatives					118		(9)		-		-		-		(1)		(29)		-		-		79		(26)
Long-term debt:
	Of Fannie Mae:
		Senior floating			(423)		8		-		-		-		-		13		-		-		(402)		8
	Of consolidated trusts				(667)		6		-		-		-		(40)		26		55		(26)		(646)		6
Total long-term debt				$	(1,090)	$	14	$	-	$	-	$	-	$	(40)	$	39	$	55	$	(26)	$	(1,048)	$	14

				Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
				For the Six Months Ended June 30, 2011
																								Net Unrealized Gains (Losses) Included in Net Loss Related to Assets and Liabilities Still Held as of June 30, 2011⁽⁴⁾
						Total Gains or (Losses) (Realized/Unrealized)
				Balance, December 31, 2010		Included in Net Loss		Included in Other Comprehensive Income		Purchases⁽¹⁾			Sales⁽¹⁾	Issuances⁽²⁾		Settlements⁽²⁾		Transfers out of Level 3⁽³⁾		Transfers into Level 3⁽³⁾		Balance, June 30, 2011
				(Dollars in millions)
Trading securities:
	Mortgage-related:
		Fannie Mae		$	2,202	$	(12)	$	-	$	124	$	(15)	$	-	$	(229)	$	(391)	$	-	$	1,679	$	(6)
		Alt-A private-label
			securities		20		1		-		-		-		-		(1)		-		106		126		1
		Subprime private-label
			securities		1,581		(30)		-		-		-		-		(92)		-		-		1,459		(30)
		Mortgage revenue bonds			609		21		-		-		-		-		(14)		-		-		616		24
		Other			152		5		-		-		-		-		(3)		-		-		154		5
	Non-mortgage-related:
		Asset-backed securities			12		-		-		-		-		-		(5)		(9)		2		-		-
Total trading securities					4,576		(15)		-		124		(15)		-		(344)		(400)		108		4,034		(6)

Available-for-sale securities:
	Mortgage-related:
		Fannie Mae			114		-		12		889		(39)		-		(2)		(469)		130		635		-
		Freddie Mac			3		-		-		-		-		-		-		-		9		12		-
		Alt-A private-label
			securities		7,049		1		78		-		-		-		(475)		(1,064)		1,063		6,652		-
		Subprime private-label
			securities		9,932		260		(605)		-		-		-		(678)		-		-		8,909		-
		Mortgage revenue bonds			11,030		(3)		294		-		(106)		-		(751)		-		-		10,464		-
		Other			3,806		3		111		-		-		-		(213)		-		-		3,707		-
Total available-for-sale
	securities				31,934		261		(110)		889		(145)		-		(2,119)		(1,533)		1,202		30,379		-

Mortgage loans of
	consolidated trusts				2,207		30		-		57		-		-		(150)		(37)		258		2,365		30
Net derivatives					104		5		-		-		-		(1)		(29)		-		-		79		(16)
Long-term debt:
	Of Fannie Mae:
		Senior floating			(421)		(14)		-		-		-		-		33		-		-		(402)		(14)
	Of consolidated trusts				(627)		(29)		-		-		-		(40)		48		77		(75)		(646)		(28)
Total long-term debt				$	(1,048)	$	(43)	$	-	$	-	$	-	$	(40)	$	81	$	77	$	(75)	$	(1,048)	$	(42)

				Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
				For the Three Months Ended June 30, 2010
																		Net Unrealized Gains (Losses) Included in Net Loss Related to Assets and Liabilities Still Held as of June 30, 2010⁽⁴⁾
						Total Gains or (Losses) (Realized/Unrealized)				Purchases, Sales, Issuances, and Settlements, Net
				Balance, April 1, 2010		Included in Net Loss		Included in Other Comprehensive Income		Purchases, Sales, Issuances, and Settlements, Net			Transfers out of Level 3⁽³⁾		Transfers into Level 3⁽³⁾		Balance, June 30, 2010
				(Dollars in millions)
Trading securities:
	Mortgage-related:
		Fannie Mae		$	4,076	$	(34)	$	-	$	(111)	$	(3,873)	$	-	$	58	$	(2)
		Freddie Mac			-		-		-		-		-		4		4		-
		Alt-A private-label
			securities		153		9		-		(12)		(99)		68		119		4
		Subprime private-label
			securities		1,683		26		-		(64)		-		-		1,645		25
		Mortgage revenue bonds			611		49		-		(10)		-		-		650		49
		Other			158		3		-		(1)		-		-		160		3
	Non-mortgage-related:
		Asset-backed securities			43		1		-		(13)		(7)		-		24		1
Total trading securities					6,724		54		-		(211)		(3,979)		72		2,660		80

Available-for-sale securities:
	Mortgage-related:
		Fannie Mae			217		1		3		(85)		(119)		36		53		-
		Freddie Mac			30		-		(1)		(8)		-		-		21		-
		Ginnie Mae			123		-		3		(1)		-		-		125		-
		Alt-A private-label
			securities		8,517		23		467		(363)		(1,245)		378		7,777		-
		Subprime private-label
			securities		10,511		78		122		(456)		-		-		10,255		-
		Mortgage revenue bonds			12,559		-		270		(401)		-		-		12,428		-
		Other			3,873		(1)		144		(126)		-		-		3,890		-
Total available-for-sale
	securities				35,830		101		1,008		(1,440)		(1,364)		414		34,549		-

Net derivatives					140		132		-		(41)		-		(5)		226		97
Guaranty assets and buy-ups					11		3		1		-		-		-		15		2
Long-term debt:
	Of Fannie Mae:
		Senior floating			(582)		(3)		-		-		-		-		(585)		(3)
	Of consolidated trusts				(71)		8		-		(38)		2		(6)		(105)		8
Total long-term debt				$	(653)	$	5	$	-	$	(38)	$	2	$	(6)	$	(690)	$	5

				Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
				For the Six Months Ended June 30, 2010
																				Net Unrealized Gains (Losses) Included in Net Loss Related to Assets and Liabilities Still Held as of June 30, 2010⁽⁴⁾
								Total Gains or (Losses) (Realized/Unrealized)				Purchases, Sales, Issuances, and Settlements, Net
				Balance, December 31, 2009		Impact of New Accounting Standards		Included in Net Loss		Included in Other Comprehensive Income		Purchases, Sales, Issuances, and Settlements, Net			Transfers out of Level 3⁽³⁾		Transfers into Level 3⁽³⁾		Balance, June 30, 2010
				(Dollars in millions)
Trading securities:
	Mortgage-related:
		Fannie Mae		$	5,656	$	(2)	$	4	$	-	$	(242)	$	(5,363)	$	5	$	58	$	(2)
		Freddie Mac			-		-		-		-		-		-		4		4		-
		Alt-A private-label
			securities		564		62		32		-		(48)		(589)		98		119		10
		Subprime private-label
			securities		1,780		-		-		-		(135)		-		-		1,645		-
		Mortgage revenue bonds			600		-		99		-		(49)		-		-		650		96
		Other			154		-		8		-		(2)		-		-		160		8
	Non-mortgage-related:
		Asset-backed securities			107		-		-		-		(49)		(47)		13		24		2
Total trading securities					8,861		60		143		-		(525)		(5,999)		120		2,660		114

Available-for-sale securities:
	Mortgage-related:
		Fannie Mae			596		(203)		(1)		4		82		(463)		38		53		-
		Freddie Mac			27		-		-		(1)		(11)		-		6		21		-
		Ginnie Mae			123		-		-		3		(1)		-		-		125		-
		Alt-A private-label
			securities		8,312		471		19		734		(675)		(2,256)		1,172		7,777		-
		Subprime private-label
			securities		10,746		(118)		(10)		585		(948)		-		-		10,255		-
		Mortgage revenue bonds			12,820		21		(1)		503		(915)		-		-		12,428		-
		Other			3,530		366		(6)		254		(254)		-		-		3,890		-
Total available-for-sale
	securities				36,154		537		1		2,082		(2,722)		(2,719)		1,216		34,549		-
Net derivatives					123		-		167		-		(59)		-		(5)		226		89
Guaranty assets and buy-ups					2,577		(2,568)		3		1		2		-		-		15		4
Long-term debt:
	Of Fannie Mae:
		Senior floating			(601)		-		11		-		5		-		-		(585)		12
	Of consolidated trusts				-		(77)		7		-		(38)		11		(8)		(105)		6
Total long-term debt				$	(601)	$	(77)	$	18	$	-	$	(33)	$	11	$	(8)	$	(690)	$	18

__________

⁽¹⁾	Purchases and sales include activity related to the consolidation and deconsolidation of assets of securitized trusts.
⁽²⁾	Issuances and settlements include activity related to the consolidation and deconsolidation of liabilities of securitized trusts.
⁽³⁾	Transfers out of Level 3 consisted primarily of Fannie Mae guaranteed mortgage-related securities and private-label mortgage-related securities backed by Alt-A loans. Prices for these securities were obtained from multiple third-party vendors supported by market observable inputs. Transfers into Level 3 consisted primarily of private-label mortgage-related securities backed by Alt-A loans. Prices for these securities are based on inputs from a single source or inputs that were not readily observable.
⁽⁴⁾	Amount represents temporary changes in fair value. Amortization, accretion and other-than-temporary impairments are not considered unrealized and are not included in this amount.

The following tables display realized and unrealized gains and losses included in our condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2011 and 2010, for our Level 3 assets and liabilities measured in our condensed consolidated balance sheets at fair value on a recurring basis.

		For the Three Months Ended June 30, 2011
						Net
				Fair Value		Other-than-
		Interest		Gains		Temporary
		Income		(Losses), net		Impairments			Other		Total

		(Dollars in millions)
Total realized and unrealized gains (losses) included
	in net loss	$	135	$	8	$	(6)	$	4	$	141
Net unrealized losses related to Level 3 assets
	and liabilities still held as of June 30, 2011	$	(1)	$	(7)	$	-	$	-	$	(8)

		For the Six Months Ended June 30, 2011
						Net
				Fair Value		Other-than-
		Interest		Gains		Temporary
		Income		(Losses), net		Impairments			Other		Total

		(Dollars in millions)

Total realized and unrealized gains (losses) included
	in net loss	$	270	$	(16)	$	(23)	$	7	$	238
Net unrealized losses related to Level 3 assets
	and liabilities still held as of June 30, 2011	$	(1)	$	(33)	$	-	$	-	$	(34)

		For the Three Months Ended June 30, 2010
						Net
				Fair Value		Other-than-
		Interest		Gains		Temporary-
		Income		(Losses), net		Impairments		Other		Total
		(Dollars in millions)
Total realized and unrealized gains (losses) included
	in net loss	$	101	$	192	$	(7)	$	9	$	295
Net unrealized gains related to Level 3 assets and
	liabilities still held as of June 30, 2010	$	-	$	182	$	-	$	2	$	184

		For the Six Months Ended June 30, 2010
						Net
				Fair Value		Other-than-
		Interest		Gains		Temporary-
		Income		(Losses), net		Impairments		Other		Total
		(Dollars in millions)
Total realized and unrealized gains (losses) included
	in net loss	$	212	$	325	$	(219)	$	14	$	332
Net unrealized gains related to Level 3 assets and
	liabilities still held as of June 30, 2010	$	-	$	221	$	-	$	4	$	225

We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a description of the valuation techniques we use for assets and liabilities measured at fair value on a recurring basis, as well as our basis for classifying these assets and liabilities as Level 1, Level 2 or Level 3. These valuation techniques are also used to estimate the fair value of financial instruments not carried at fair value but disclosed as part of the fair value of financial instruments.

Cash Equivalents, Trading Securities and Available-for-Sale Securities – These securities are recorded in our condensed consolidated balance sheets at fair value on a recurring basis. Fair value is measured using quoted market prices in active markets for identical assets, when available. Securities, such as U.S. Treasuries, whose value is based on quoted market prices in active markets for identical assets are classified as Level 1. If quoted market prices in active markets for identical assets are not available, we use prices provided by up to four third-party pricing services that are calibrated to the quoted market prices in active markets for similar securities, and assets valued in this manner are classified as Level 2. In the absence of prices provided by third-party pricing services supported by observable market data, fair values are estimated using quoted prices of securities with similar characteristics or discounted cash flow models that use inputs such as spread, prepayment speed, yield, and loss severity based on market assumptions where available. Such instruments are generally classified as Level 2. Where there is limited activity or less transparency around inputs to the valuation, securities are classified as Level 3.

Mortgage Loans Held for Investment – The majority of HFI performing loans and nonperforming loans that are not individually impaired are reported in our condensed consolidated balance sheets at the principal amount outstanding, net of cost basis adjustments and an allowance for loan losses. We elected the fair value option for certain loans containing embedded derivatives that would otherwise require bifurcation and consolidated loans of senior-subordinate trust structures, which are recorded in our condensed consolidated balance sheets at fair value on a recurring basis.

Fair value of performing loans represents an estimate of the prices we would receive if we were to securitize those loans and is determined based on comparisons to Fannie Mae MBS with similar characteristics, either on a pool or loan level. We use the observable market values of our Fannie Mae MBS determined from third-party pricing services and other observable market data as a base value, from which we add or subtract the fair value of the associated guaranty asset, guaranty obligation and master servicing arrangement. We classify these valuations primarily within Level 2 of the valuation hierarchy given that the market values of our Fannie Mae MBS are calibrated to the quoted market prices in active markets for similar securities. To the extent that significant inputs are not observable or determined by extrapolation of observable points, the loans are classified within Level 3. Certain loans that do not qualify for Fannie Mae MBS securitization are valued using market-based data including, for example, credit spreads, severities and prepayment speeds for similar loans, through third-party pricing services or through a model approach incorporating both interest rate and credit risk simulating a loan sale via a synthetic structure.

Fair value of single-family nonperforming loans represents an estimate of the prices we would receive if we were to sell these loans in the nonperforming whole-loan market. We calculate the fair value of nonperforming loans based on assumptions about key factors, including loan performance, collateral value, foreclosure related expenses, disposition timeline, and mortgage insurance repayment. Using these assumptions, along with indicative bids for a representative sample of nonperforming loans, we compute a market calibrated fair value. The bids on sample loans are obtained from multiple active market participants. Fair value for loans that are four or more months delinquent, in an open modification period, or in a closed modification and that have performed for nine or fewer months, is estimated directly from a model calibrated to these indicative bids. Fair value for loans that are one to three months delinquent is estimated by an interpolation method using three inputs: (1) the fair value estimate as a performing loan; (2) the fair value estimate as a nonperforming loan; and (3) the delinquency transition rate corresponding to the loan's current delinquency status.

Fair value of a portion of our single-family nonperforming loans is measured using the value of the underlying collateral. These valuations leverage our proprietary distressed home price model. The model assigns a value using comparable transaction data. In determining what comparables to use in the calculations, the model measures three key characteristics relative to the target property: (1) distance from target property, (2) time of the transaction and (3) comparability of the nondistressed value. A portion of the nonperforming loans that are impaired is measured at fair value in our condensed consolidated balance sheets on a nonrecurring basis. These loans are classified within Level 3 of the valuation hierarchy because significant inputs are unobservable.

Fair value of multifamily nonperforming loans is determined by external third-party valuations when available. If third-party valuations are unavailable, we determine the value of the collateral based on a derived property value estimation method using current net operating income of the property and capitalization rates.

Derivatives Assets and Liabilities (collectively “derivatives”) – Derivatives are recorded in our condensed consolidated balance sheets at fair value on a recurring basis. The valuation process for the majority of our risk management derivatives uses observable market data provided by third-party sources, resulting in Level 2 classification. Interest rate swaps are valued by referencing yield curves derived from observable interest rates and spreads to project and discount swap cash flows to present value. Option-based derivatives use a model that projects the probability of various levels of interest rates by referencing swaption and caplet volatilities provided by market makers/dealers. The projected cash flows of the underlying swaps of these option-based derivatives are discounted to present value using yield curves derived from observable interest rates and spreads. Exchange-traded futures are valued using market quoted prices, resulting in Level 1 classification. Certain highly complex structured derivatives use only a single external source of price information due to lack of transparency in the market and may be modeled using observable interest rates and volatility levels as well as significant assumptions, resulting in Level 3 classification. Mortgage commitment derivatives use observable market data, quotes and actual transaction price levels adjusted for market movement, and are typically classified as Level 2. Adjustments for market movement based on internal model results that cannot be corroborated by observable market data are classified as Level 3.

Guaranty Assets and Buy-ups – Guaranty assets related to our portfolio securitizations are recorded in our condensed consolidated balance sheets at fair value on a recurring basis and are classified within Level 3 of the valuation hierarchy. Guaranty assets in lender swap transactions are recorded in our condensed consolidated balance sheets at the lower of cost or fair value. These assets, which are measured at fair value on a nonrecurring basis, are classified within Level 3 of the fair value hierarchy.

We estimate the fair value of guaranty assets based on the present value of expected future cash flows of the underlying mortgage assets using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves, and discount rates commensurate with the risks involved. These cash flows are projected using proprietary prepayment, interest rate and credit risk models. Because guaranty assets are like an interest-only income stream, the projected cash flows from our guaranty assets are discounted using one-month LIBOR plus the option-adjusted spread (“OAS”) for interest-only trust securities. The interest-only OAS is calibrated using prices of a representative sample of interest-only trust securities. We believe the remitted fee income is less liquid than interest-only trust securities and more like an excess servicing strip. We take a further haircut of the present value for liquidity considerations. This discount is based on market quotes from dealers.

The fair value of the guaranty assets includes the fair value of any associated buy-ups, which is estimated in the same manner as guaranty assets but is recorded separately as a component of “Other assets” in our condensed consolidated balance sheets. While the fair value of the guaranty assets reflects all guaranty arrangements, the carrying value primarily reflects only those arrangements entered into subsequent to our adoption of the accounting standard on guarantor's accounting and disclosure requirements for guarantees.

Debt – The majority of debt of Fannie Mae is recorded in our condensed consolidated balance sheets at the principal amount outstanding, net of cost basis adjustments. We elected the fair value option for certain structured debt instruments, which are recorded in our condensed consolidated balance sheets at fair value on a recurring basis.

We use third-party pricing services that reference observable market data such as interest rates and spreads to measure the fair value of debt, and thus classify that debt as Level 2. When third-party pricing is not available, we use a discounted cash flow approach based on a yield curve derived from market prices observed for Fannie Mae Benchmark Notes and adjusted to reflect fair values at the offer side of the market.

For structured debt instruments that are not valued by third-party pricing services, cash flows are evaluated taking into consideration any structured derivatives through which we have swapped out of the structured features of the notes. The resulting cash flows are discounted to present value using a yield curve derived from market prices observed for Fannie Mae Benchmark Notes and adjusted to reflect fair values at the offer side of the market. Market swaption volatilities are also referenced for the valuation of callable structured debt instruments. Given that the derivatives considered in the valuations of these structured debt instruments are classified as Level 3, the valuations of the structured debt instruments result in a Level 3 classification.

Consolidated MBS debt is traded in the market as MBS assets. Accordingly, we estimate the fair value of our consolidated MBS debt using quoted market prices in active markets for similar liabilities when traded as assets. The valuation methodology and inputs used in estimating the fair value of MBS assets are described under “Cash Equivalents, Trading Securities and Available-for-Sale Securities.” Certain consolidated MBS debt with embedded derivatives is recorded in our condensed consolidated balance sheets at fair value on a recurring basis.

Nonrecurring Changes in Fair Value

The following tables display assets and liabilities measured in our condensed consolidated balance sheets at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when we evaluate for impairment), and the gains or losses recognized for these assets and liabilities for the three and six months ended June 30, 2011 and 2010 as a result of fair value measurements.

												For the		For the
			Fair Value Measurements									Three Months Ended		Six Months Ended
			For the Six Months Ended June 30, 2011									June 30, 2011		June 30, 2011
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable		Estimated
			Assets		Inputs		Inputs		Fair			Total		Total
			(Level 1)		(Level 2)		(Level 3)		Value			Losses		Losses

			(Dollars in millions)
Assets:
Mortgage loans held for sale, at
	lower of cost or fair value		$	-	$	2	$	204	$	206	⁽¹⁾	$	(8)	$	(13)
Single-family mortgage loans held for
	investment, at amortized cost:
		Of Fannie Mae		-		-		32,970		32,970	⁽²⁾		(66)		(1,080)
		Of consolidated trusts		-		-		749		749	⁽²⁾		(18)		(98)
Multifamily mortgage loans held for
	investment, at amortized cost:
		Of Fannie Mae		-		-		1,365		1,365	⁽²⁾		(28)		(108)
Acquired property, net:
	Single-family			-		-		14,806		14,806	⁽³⁾		(701)		(1,512)
	Multifamily			-		-		227		227	⁽³⁾		(33)		(49)
Other assets				-		-		877		877	⁽⁵⁾		(35)		(65)
	Total assets at fair value		$	-	$	2	$	51,198	$	51,200		$	(889)	$	(2,925)

												For the		For the
												Three Months Ended		Six Months Ended
			Fair Value Measurements for the Six Months Ended June 30, 2010									June 30, 2010		June 30, 2010
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable		Estimated
			Assets		Inputs		Inputs		Fair			Total		Total
			(Level 1)		(Level 2)		(Level 3)		Value			Losses		Losses
			(Dollars in millions)
Assets:
Mortgage loans held for sale, at
	lower of cost or fair value		$	-	$	6,869	$	540	$	7,409	⁽¹⁾⁽⁴⁾	$	(21)	$	(90)	⁽⁴⁾
Single-family mortgage loans held for
	investment, at amortized cost:
		Of Fannie Mae		-		-		14,733		14,733	⁽²⁾		(917)		(808)
		Of consolidated trusts		-		-		348		348	⁽²⁾		(103)		(103)
Multifamily mortgage loans held for
	investment, at amortized cost:
		Of Fannie Mae		-		-		1,730		1,730	⁽²⁾		(146)		(237)
Acquired property, net:
	Single-family			-		-		9,995		9,995	⁽³⁾		(672)		(1,004)
	Multifamily			-		-		133		133	⁽³⁾		(17)		(32)
Other Assets:
	Guaranty assets			-		-		24		24			(1)		(4)
	Partnership investments			-		-		85		85			(26)		(89)
	Total assets at fair value		$	-	$	6,869	$	27,588	$	34,457		$	(1,903)	$	(2,367)

__________

⁽¹⁾	Includes $56 million and $7.1 billion of mortgage loans held for sale that were sold, deconsolidated, retained as a mortgage-related security or redesignated to mortgage loans held for investment as of June 30, 2011 and 2010, respectively.
⁽²⁾	Includes $3.6 billion and $508 million of mortgage loans held for investment that were liquidated or transferred to foreclosed properties as of June 30, 2011 and 2010, respectively.
⁽³⁾	Includes $8.4 billion and $4.0 billion of acquired properties that were sold or transferred as of June 30, 2011 and 2010, respectively.
⁽⁴⁾	Includes $7.1 billion of estimated fair value and $68 million in losses due to the adoption of the new accounting standards.
⁽⁵⁾	Includes $144 million of other assets that were sold or transferred as of June 30, 2011.

The following is a description of the fair valuation techniques we use for assets and liabilities measured at fair value on a nonrecurring basis under the accounting standard for fair value measurements as well as our basis for classifying these assets and liabilities as Level 1, Level 2 or Level 3. We also use these valuation techniques to estimate the fair value of financial instruments not carried at fair value but disclosed as part of the fair value of financial instruments.

Mortgage Loans Held for Sale – Loans are reported at the lower of cost or fair value in our condensed consolidated balance sheets. The valuation methodology and inputs used in estimating the fair value of HFS loans are described under “Mortgage Loans Held for Investment” and these loans are classified as Level 2 to the extent that significant inputs are observable. To the extent that significant inputs are unobservable or determined by extrapolation of observable points, the loans are classified within Level 3.

Acquired Property, Net and Other Assets – Acquired property, net mainly represents foreclosed property received in full satisfaction of a loan net of a valuation allowance. Acquired property is initially recorded in our condensed consolidated balance sheets at its fair value less its estimated cost to sell. The initial fair value of foreclosed properties is determined using a hierarchy based on the reliability of available information. The fair value estimate is based on the best information available at the time of valuation. The hierarchy includes offers accepted, third-party interior appraisals, independent broker opinions, proprietary home price model values and exterior broker price opinions. Estimated cost to sell is based upon historical sales cost at a geographic level.

Subsequent to initial measurement, the foreclosed properties that we intend to sell are reported at the lower of the carrying amount or fair value less estimated costs to sell. Foreclosed properties classified as held for use, included in other assets, are depreciated and are impaired when circumstances indicate that the carrying amount of the property is no longer recoverable. Acquired property held for use is included in other assets in our condensed consolidated balance sheets. The fair value of our single-family foreclosed properties on an ongoing basis is determined using the same information hierarchy used at the point of initial fair value. The fair value of our multifamily properties is derived using third-party valuations. When third-party valuations are not available, we estimate the fair value using current net operating income of the property and capitalization rates.

Acquired property is classified as Level 3 of the valuation hierarchy because significant inputs are unobservable.

Fair Value of Financial Instruments

The following table displays the carrying value and estimated fair value of our financial instruments as of June 30, 2011 and December 31, 2010. The fair value of financial instruments we disclose, includes commitments to purchase multifamily and single-family mortgage loans, which are off-balance sheet financial instruments 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 certain financial instruments, such as plan obligations for pension and postretirement health care benefits, employee stock option and stock purchase plans, and also excludes all non-financial instruments. As a result, the fair value of our financial assets and liabilities does not represent the underlying fair value of our total consolidated assets and liabilities.

			As of
			June 30, 2011				December 31, 2010⁽²⁾
			Carrying		Estimated		Carrying		Estimated
			Value		Fair Value		Value		Fair Value
			(Dollars in millions)
Financial assets:
Cash and cash equivalents⁽¹⁾			$	51,853	$	51,853	$	80,975	$	80,975
Federal funds sold and securities purchased
	under agreements to resell or similar arrangements			19,500		19,500		11,751		11,751
Trading securities				61,907		61,907		56,856		56,856
Available-for-sale securities				86,616		86,616		94,392		94,392
Mortgage loans held for sale				439		439		915		915
Mortgage loans held for investment, net of
	allowance for loan losses:
		Of Fannie Mae		330,390		299,543		358,698		319,367
		Of consolidated trusts		2,597,000		2,639,555		2,564,107		2,610,145
Mortgage loans held for investment				2,927,390		2,939,098		2,922,805		2,929,512
Advances to lenders				3,829		3,641		7,215		6,990
Derivative assets at fair value				668		668		1,137		1,137
Guaranty assets and buy-ups				483		929		458		814
Total financial assets			$	3,152,685	$	3,164,651	$	3,176,504	$	3,183,342

Financial liabilities:
Federal funds purchased and securities sold
	under agreements to repurchase		$	-	$	-	$	52	$	51
Short-term debt:
	Of Fannie Mae			162,005		162,041		151,884		151,974
	Of consolidated trusts			5,193		5,194		5,359		5,359
Long-term debt:
	Of Fannie Mae			562,794		585,398		628,160		649,684
	Of consolidated trusts			2,444,853		2,557,891		2,411,597		2,514,929
Derivative liabilities at fair value				592		592		1,715		1,715
Guaranty obligations				778		3,700		769		3,854
Total financial liabilities			$	3,176,215	$	3,314,816	$	3,199,536	$	3,327,566

__________

⁽¹⁾	Includes restricted cash of $37.6 billion and $63.7 billion as of June 30, 2011 and December 31, 2010, respectively.

The following are valuation techniques for items not subject to the fair value hierarchy either because they are not measured at fair value other than for the purpose of the above table or because they are only measured at fair value at inception.

Financial Instruments for which fair value approximates carrying value – We hold certain financial instruments that are not carried at fair value but for which the carrying value approximates fair value due to the short-term nature and negligible credit risk inherent in them. These financial instruments include cash and cash equivalents, federal funds and securities sold/purchased under agreements to repurchase/resell (exclusive of dollar roll repurchase transactions) and the majority of advances to lenders.

Advances to Lenders –The carrying value for the majority of our advances to lenders approximates the fair value due to the short-term nature of the specific instruments. Other instruments include loans for which the carrying value does not approximate fair value. These loans are valued using collateral values of similar loans as a proxy.

Guaranty Obligations – The fair value of all guaranty obligations (“GO”), measured subsequent to their initial recognition, is our estimate of a hypothetical transaction price we would receive if we were to issue our guaranty to an unrelated party in a standalone arm's-length transaction at the measurement date. We estimate the fair value of the GO using our internal GO valuation models, which calculate the present value of expected cash flows based on management's best estimate of certain key assumptions such as current mark-to-market LTV ratios, future house prices, default rates, severity rates and required rate of return. We further adjust the model values based on our current market pricing when such transactions reflect credit characteristics that are similar to our outstanding GO. While the fair value of the GO reflects all guaranty arrangements, the carrying value primarily reflects only those arrangements entered into subsequent to our adoption of the accounting standard on guarantor's accounting and disclosure requirements for guarantees.

Fair Value Option

We elected the fair value option for certain consolidated loans and debt instruments recorded in our condensed consolidated balance sheets as a result of consolidating VIEs. These instruments contain embedded derivatives that would otherwise require bifurcation. Under the fair value option, we elected to carry these instruments at fair value instead of bifurcating the embedded derivative from the respective loan or debt instrument.

We elected the fair value option for all long-term structured debt instruments that are issued in response to specific investor demand and have interest rates that are based on a calculated index or formula and are economically hedged with derivatives at the time of issuance. By electing the fair value option for these instruments, we are able to eliminate the volatility in our results of operations that would otherwise result from the accounting asymmetry created by recording these structured debt instruments at cost while recording the related derivatives at fair value.

We elected the fair value option for the financial assets and liabilities of the consolidated senior-subordinate trust structures. By electing the fair value option for these instruments, we are able to eliminate the volatility in our results of operations that would otherwise result from different accounting treatment between loans at cost and debt at cost.

Interest income for the mortgage loans is recorded in “Mortgage loans interest income” and interest expense for the debt instruments is recorded in “Long-term debt interest expense” in our condensed consolidated statements of operations and comprehensive loss.

The following table displays the fair value and unpaid principal balance of the financial instruments for which we have made fair value elections as of June 30, 2011 and December 31, 2010.

	As of
	June 30, 2011						December 31, 2010
					Long-Term						Long-Term
	Loans of		Long-Term		Debt of		Loans of		Long-Term		Debt of
	Consolidated		Debt of		Consolidated		Consolidated		Debt of		Consolidated
	Trusts⁽¹⁾		Fannie Mae		Trusts⁽²⁾		Trusts⁽¹⁾		Fannie Mae		Trusts⁽²⁾
	(Dollars in millions)
Fair value	$	3,084	$	862	$	3,273	$	2,962	$	893	$	2,271
Unpaid principal balance		3,612		796		3,450		3,456		829		2,572

__________
⁽¹⁾	Includes nonaccrual loans with a fair value of $222 million and $219 million as of June 30, 2011 and December 31, 2010, respectively. The difference between unpaid principal balance and the fair value of these nonaccrual loans as of June 30, 2011 is $216 million. Includes loans that are 90 days past due with a fair value of $367 million and $369 million as of June 30, 2011 and December 31, 2010, respectively. The difference between unpaid principal balance and the fair value of these 90 or more days past due loans as of June 30, 2011 is $247 million.
⁽²⁾	Includes interest-only debt instruments with no unpaid principal balance and a fair value of $136 million and $151 million as of June 30, 2011 and December 31, 2010, respectively.

Changes in Fair Value under the Fair Value Option Election

The following table displays fair value gains and losses, net, including changes attributable to instrument-specific credit risk, for loans and debt for which the fair value election was made. Amounts are recorded as a component of “Fair value gains (losses), net” in our condensed consolidated statements of operations and comprehensive loss for the periods ended June 30, 2011 and 2010.

		For the Three Months Ended June 30,

		2011								2010
				Long-Term				Long-Term
		Loans		Debt		Total Gains		Debt
		(Dollars in millions)

Changes in instrument-specific credit risk		$	6	$	8	$	14	$	5
Other changes in fair value			76		(26)		50		1
	Fair value gains (losses), net	$	82	$	(18)	$	64	$	6

		For the Six Months Ended June 30,
		2011								2010
				Long-Term		Total Gains		Long-Term
		Loans		Debt		(Losses)		Debt
		(Dollars in millions)

Changes in instrument-specific credit risk		$	(211)	$	4	$	(207)	$	8
Other changes in fair value			141		7		148		(26)
	Fair value gains (losses), net	$	(70)	$	11	$	(59)	$	(18)

In determining the changes in the instrument-specific credit risk for loans, the changes in the associated credit-related components of these loans, primarily the guaranty obligation, were taken into consideration with the overall change in the fair value of the loans for which we elected the fair value option for financial instruments. In determining the changes in the instrument-specific credit risk for debt, the changes in Fannie Mae debt spreads to LIBOR that occurred during the period were taken into consideration with the overall change in the fair value of the debt for which we elected the fair value option for financial instruments. Specifically, cash flows are evaluated taking into consideration any derivatives through which Fannie Mae has swapped out of the structured features of the notes and thus created a floating-rate LIBOR-based debt instrument. The change in value of these LIBOR-based cash flows based on the Fannie Mae yield curve at the beginning and end of the period represents the instrument-specific risk.

Commitments and Contingencies

6 Months Ended

Jun. 30, 2011

Notes to Consolidated Financial Statements

Commitments and Contingencies

14. 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. Litigation claims and proceedings of all types are subject to many uncertain factors that generally cannot be predicted with assurance. The following describes our material legal proceedings, investigations and other matters.

For certain legal actions and proceedings we have established a reserve for probable losses where we can reasonably estimate such losses or ranges of losses. Based on our current knowledge and after consultation with counsel, we do not believe that such losses or ranges of losses will have a material adverse effect on our financial condition. We note, however, that in light of the uncertainties involved in such actions and proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves we have currently accrued. For certain other legal actions or proceedings, including those where there is only a reasonable possibility that a loss may be incurred, we cannot reasonably estimate such losses or ranges of losses, particularly for proceedings that are in their early stages of development, where plaintiffs seek substantial or indeterminate damages, or where there may be novel or unsettled legal questions relevant to the proceedings. For these matters, we have not established a reserve. Given the uncertainties involved in any action or proceeding, regardless of whether we have established a reserve, the ultimate resolution of certain of these matters may be material to our operating results for a particular period, depending on, among other factors, the size of the loss or liability imposed and the level of our net income or loss for that period. Based on our current knowledge with respect to the lawsuits described below, we believe we have valid defenses to the claims in these lawsuits and intend to defend these lawsuits vigorously regardless of whether or not we have recorded a loss reserve.

In addition to the matters specifically described below, we are involved in a number of legal and regulatory proceedings that arise in the ordinary course of business that we do not expect will have a material impact on our business or financial condition. We have advanced fees and expenses of certain current and former officers and directors in connection with various legal proceedings pursuant to indemnification agreements.

In re Fannie Mae Securities Litigation

Fannie Mae is a defendant in a consolidated class action lawsuit initially filed in 2004 and currently pending in the U.S. District Court for the District of Columbia. In the consolidated complaint filed on March 4, 2005, lead plaintiffs Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio allege that we and certain former officers, as well as our former outside auditor, made materially false and misleading statements in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder. Plaintiffs contend that Fannie Mae's accounting statements were inconsistent with GAAP requirements relating to hedge accounting and the amortization of premiums and discounts, and seek unspecified compensatory damages, attorneys' fees, and other fees and costs. On January 7, 2008, the court defined the class as all purchasers of Fannie Mae common stock and call options and all sellers of publicly traded Fannie Mae put options during the period from April 17, 2001 through December 22, 2004. On October 17, 2008, FHFA, as conservator for Fannie Mae, intervened in this case.

2008 Class Action Lawsuits

Fannie Mae is a defendant in two consolidated class actions filed in 2008 and currently pending in the U.S. District Court for the Southern District of New York – In re Fannie Mae 2008 Securities Litigation and In re 2008 Fannie Mae ERISA Litigation. On February 11, 2009, the Judicial Panel on Multidistrict Litigation ordered that the cases be coordinated for pretrial proceedings.

In re Fannie Mae 2008 Securities Litigation

In a consolidated complaint filed on June 22, 2009, lead plaintiffs Massachusetts Pension Reserves Investment Management Board and Boston Retirement Board (for common shareholders) and Tennessee Consolidated Retirement System (for preferred shareholders) allege that we, certain of our former officers, and certain of our underwriters violated Sections 12(a)(2) and 15 of the Securities Act of 1933. Lead plaintiffs also allege that we, certain of our former officers, and our outside auditor, violated Sections 10(b) (and Rule 10b-5 promulgated thereunder) and 20(a) of the Securities Exchange Act of 1934. On July 28, 2011 lead plaintiffs filed motions to certify a class of persons who, between November 8, 2006 and September 5, 2008, inclusive, purchased or acquired (a) Fannie Mae common stock and options or (b) Fannie Mae preferred stock. Lead plaintiffs seek various forms of relief, including rescission, damages, interest, costs, attorneys' and experts' fees, and other equitable and injunctive relief. On October 13, 2009, the Court entered an order allowing FHFA to intervene.

On November 24, 2009, the Court granted the defendants' motion to dismiss the Securities Act claims as to all defendants. On September 30, 2010, the Court granted in part and denied in part the defendants' motions to dismiss the Securities Exchange Act claims. As a result of the partial denial, some of the Securities Exchange Act claims remain pending against us and certain of our former officers. On October 14, 2010, we and certain other defendants filed motions for reconsideration of those portions of the Court's September 30, 2010 order denying in part the defendants' motions to dismiss. Fannie Mae filed its answer to the consolidated complaint on December 31, 2010. Defendants' motions for reconsideration were denied on April 11, 2011.

In re 2008 Fannie Mae ERISA Litigation

In a consolidated complaint filed on September 11, 2009, plaintiffs allege that certain of our current and former officers and directors, including former members of Fannie Mae's Benefit Plans Committee and the Compensation Committee of Fannie Mae's Board of Directors, as fiduciaries of Fannie Mae's Employee Stock Ownership Plan (“ESOP”), breached their duties to ESOP participants and beneficiaries by investing ESOP funds in Fannie Mae common stock when it was no longer prudent to continue to do so. Plaintiffs purport to represent a class of participants and beneficiaries of the ESOP whose accounts invested in Fannie Mae common stock beginning April 17, 2007. The plaintiffs seek unspecified damages, attorneys' fees and other fees and costs and injunctive and other equitable relief. On November 2, 2009, defendants filed motions to dismiss these claims, which are now fully briefed and remain pending.

Comprehensive Investment Services v. Mudd, et al.

This individual securities action was originally filed on May 13, 2009, by plaintiff Comprehensive Investment Services, Inc. against certain of our former officers and directors, and certain of our underwriters in the Southern District of Texas. On July 7, 2009, this case was transferred to the Southern District of New York for coordination with In re Fannie Mae 2008 Securities Litigation and In re 2008 Fannie Mae ERISA Litigation. Plaintiff filed an amended complaint on May 11, 2011 against us, certain of our former officers, and certain of our underwriters. The amended complaint alleges violations of §10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder; violations of §20(a) of the Securities Exchange Act of 1934; and violations of the Texas Business and Commerce Code, common law fraud, and negligent misrepresentation in connection with Fannie Mae's May 2008 $2.0 billion offering of 8.25% non-cumulative preferred Series T stock. Plaintiff seeks relief in the form of rescission, actual damages, punitive damages, interest, costs, attorneys' and experts' fees, and other equitable and injunctive relief. Defendants moved to dismiss the amended complaint on July 11, 2011.

Smith v. Fannie Mae, et al.

This individual securities action was originally filed on February 25, 2010, by plaintiff Edward Smith against Fannie Mae and certain of its former officers as well as several underwriters in the Central District of California. On April 12, 2010, this case was transferred to the Southern District of New York for coordination with In re Fannie Mae 2008 Securities Litigation and In re 2008 Fannie Mae ERISA Litigation. Plaintiff filed an amended complaint on April 19, 2011, which alleges violations of §10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder; violations of §20(a) of the Securities Exchange Act of 1934; common law fraud and negligence claims; and California state law claims for misrepresentation in connection with Fannie Mae's December 2007 $7.0 billion offering of 7.75% fixed-to-floating rate non-cumulative preferred Series S stock. Plaintiff seeks relief in the form of rescission, actual damages (including interest), and exemplary and punitive damages. Defendants moved to dismiss the complaint on July 11, 2011.

Alenick v. Merrill Lynch, et al.

On May 12, 2011, Zeke Alenick filed an individual securities action against one of our former officers, certain of our underwriters, and an employee of one of our underwriters in New York State Court. Plaintiff alleges common law fraud, recklessness, negligence, and violations of §349 of the New York General Business Law in connection with Fannie Mae's May 2008 $2.0 billion offering of 8.25% non-cumulative preferred Series T stock. The complaint seeks various forms of relief, including damages, punitive damages, and rescission. On June 13, 2011, the case was removed to the United States District Court for the Southern District of New York and accepted as related to In re Fannie Mae 2008 Securities Litigation and In re 2008 Fannie Mae ERISA Litigation. On July 18 and 25, 2011, Alenick filed motions to dismiss voluntarily all defendants. The court granted those motions on July 25 and 28, 2011, and closed the case.

Investigation by the Securities and Exchange Commission

On September 26, 2008, we received notice of an ongoing investigation into Fannie Mae by the SEC regarding certain accounting and disclosure matters. On January 8, 2009, the SEC issued a formal order of investigation. We are cooperating with this investigation.

Investigation by the Department of Justice

On September 26, 2008, we received notice of an ongoing federal investigation by the U.S. Attorney for the Southern District of New York into certain accounting, disclosure and corporate governance matters. In connection with that investigation, Fannie Mae received a Grand Jury subpoena for documents. That subpoena was subsequently withdrawn. However, we were informed that the Department of Justice was continuing an investigation and on March 15, 2010, we received another Grand Jury subpoena for documents. We are cooperating with this investigation.

Condensed Consolidated Balance Sheets (Parenthetical) (Unaudited) - USD ($) $ in Millions	Jun. 30, 2011	Jun. 30, 2011	Dec. 31, 2010	Dec. 31, 2010
Assets:
Cash and cash equivalents		$ 14,274		$ 17,297
Restricted cash		37,579		63,678
Investments in securities:
Trading, at fair value		61,907		56,856
Available-for-sale, at fair value		86,616		94,392
Mortgage loans:
Loans held for sale, at lower of cost or fair value		439		915
Accrued interest receivable, net		10,681		11,279
Other assets		24,134		26,826
Liabilities:
Accrued interest payable		13,289		13,764
Other liabilities		$ 13,065		$ 13,673
Fannie Mae stockholders' equity (deficit):
Senior preferred stock issued (in shares)	1,000,000		1,000,000
Senior preferred stock outstanding (in shares)	1,000,000		1,000,000
Preferred stock authorized (in shares)	700,000,000		700,000,000
Preferred stock issued (in shares)	555,374,922		576,868,139
Preferred stock outstanding (in shares)	555,374,922		576,868,139
Common stock par or stated value per share (in shares)
Common stock authorized (in shares)		no maximum		no maximum
Common stock issued (in shares)	1,308,762,703		1,270,092,708
Common stock outstanding (in shares)	1,157,750,434		1,118,504,194
Treasury stock ( in shares)	151,012,269		151,588,514
Of Fannie Mae [Member]
Liabilities:
Debt at fair value included in debt		$ 862		$ 893
Of Consolidated Trusts [Member]
Assets:
Cash and cash equivalents		3		348
Restricted cash		33,136		59,619
Investments in securities:
Trading, at fair value		21		21
Available-for-sale, at fair value		1,590		1,055
Mortgage loans:
Loans held for sale, at lower of cost or fair value		73		661
Loans at fair value included in loans held for investment, at amortized cost		3,084		2,962
Loans pledged as collateral that may be sold or repledged included in loans held for investment, at amortized cost		460		2,522
Accrued interest receivable, net		8,683		8,910
Other assets		59		593
Liabilities:
Accrued interest payable		9,584		9,712
Debt at fair value included in debt		3,273		2,271
Other liabilities		$ 707		$ 893