UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 2, 2018
Federal National Mortgage Association
(Exact name of registrant as specified in its charter)
Federally chartered corporation | 0-50231 | 52-0883107 | 1100 15th Street, NW Washington, DC 20005 | (800) 2FANNIE (800-232-6643) | ||||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | (Address of principal executive offices, including zip code) | (Registrant’s telephone number, including area code) | ||||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§203.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
The information in this report, including information in the exhibits submitted with this report, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of Section 18, nor shall it be deemed incorporated by reference into any disclosure document relating to Fannie Mae (formally known as the Federal National Mortgage Association), except to the extent, if any, expressly incorporated by specific reference in that document.
Item 2.02 Results of Operations and Financial Condition.
On November 2, 2018, Fannie Mae filed its quarterly report on Form 10-Q for the quarter ended September 30, 2018 and issued a news release reporting its financial results for the periods covered by the Form 10-Q. Copies of the news release and a financial supplement are furnished as Exhibits 99.1 and 99.2, respectively, to this report and are incorporated herein by reference. Copies may also be found on Fannie Mae’s website, www.fanniemae.com, in the “About Us” section under “Investor Relations/Quarterly and Annual Results.” Information appearing on the company’s website is not incorporated into this report.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits. The following exhibits are being submitted with this report:
Exhibit Number | Description of Exhibit | |
99.1 | ||
99.2 | ||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
FEDERAL NATIONAL MORTGAGE ASSOCIATION | ||
By | /s/ Celeste M. Brown | |
Celeste M. Brown | ||
Executive Vice President and Chief Financial Officer | ||
Date: November 2, 2018
Resource Center: 1-800-732-6643
Exhibit 99.1
Contact: Pete Bakel
202-752-2034
Date: November 2, 2018
Fannie Mae Reports Net Income of $4.0 Billion and
Comprehensive Income of $4.0 Billion for Third Quarter 2018
Third Quarter 2018 Results | “Fannie Mae’s strong third quarter results reflect the company’s positive momentum, the strength of our business, and our strategic direction. “We are focused on serving our customers, helping them navigate market headwinds, and enabling a mortgage process that is better, faster, cheaper, and safer. “That means we have a responsibility to innovate, while maintaining our strong commitment to safety, soundness, and stewardship on behalf of taxpayers.” Hugh Frater, Interim Chief Executive Officer | |
• Fannie Mae reported net income of $4.0 billion and comprehensive income of $4.0 billion for the third quarter of 2018 reflecting the strength of the company’s business fundamentals. Fannie Mae’s pre-tax income was $5.1 billion for the third quarter of 2018. | ||
• Fannie Mae expects to pay a $4.0 billion dividend to Treasury by December 31, 2018. Through the third quarter of 2018, the company has paid $171.8 billion in dividends to Treasury. | ||
Business Highlights | ||
• Fannie Mae provided $122 billion in liquidity to the single-family mortgage market in the third quarter of 2018 while serving as the largest issuer of single-family mortgage-related securities in the secondary market. The company’s estimated market share of new single-family mortgage-related securities issuances was 40% for the third quarter of 2018. | ||
• Fannie Mae has transferred a portion of the mortgage credit risk on single-family mortgages with an unpaid principal balance of approximately $1.5 trillion at the time of the transactions since 2013, and approximately 38% of the loans in the company’s single-family conventional guaranty book of business were covered by a credit risk transfer transaction as of September 30, 2018. | ||
• Fannie Mae expects to complete a new CAS REMIC transaction in November 2018. Under the CAS REMIC program, the company will be able to align the timing of its recognition of provisions for credit losses with the related recovery from CAS transactions, limit investors’ exposure to Fannie Mae counterparty risk, and broaden the investor base by expanding participation for real estate investment trusts (REITs) and international investors. | ||
• Fannie Mae provided $18.2 billion in multifamily financing in the third quarter of 2018, which enabled the financing of 206,000 units of multifamily housing. More than 90% of the multifamily units the company financed were affordable to families earning at or below 120% of the area median income, providing support for both affordable and workforce housing. | ||
• Fannie Mae continued to share credit risk with lenders on nearly 100% of the company’s new multifamily business volume through its Delegated Underwriting and Servicing (DUS®) program. To complement the company’s lender loss sharing program, in August 2018 the company completed its third multifamily Credit Insurance Risk Transfer™ (CIRT™) transaction, which covered multifamily loans with an unpaid principal balance of approximately $11.1 billion. | ||
Third Quarter 2018 Results | 1 | |
WASHINGTON, DC — Fannie Mae (FNMA/OTC) reported net income of $4.0 billion, pre-tax income of $5.1 billion, and comprehensive income of $4.0 billion for the third quarter of 2018. The company reported a net worth of $7.0 billion as of September 30, 2018. As a result, Fannie Mae expects to pay a $4.0 billion dividend to Treasury by December 31, 2018.
SUMMARY OF FANNIE MAE’S FINANCIAL PERFORMANCE
Fannie Mae’s net income of $4.0 billion for the third quarter of 2018 compares to net income of $4.5 billion for the second quarter of 2018. The primary driver of the decrease in net income was a decrease in credit-related income due primarily to a reduction in the benefit from the redesignation of loans from held-for-investment to held-for-sale and a smaller improvement in home prices compared with the second quarter of 2018. The decrease was partially offset by higher fair value gains in the third quarter of 2018 compared with the second quarter of 2018.
Third Quarter 2018 Results | 2 | |
Summary of Financial Results |
(Dollars in millions) | 3Q18 | 2Q18 | Variance | 3Q18 | 3Q17 | Variance | ||||||||||||||||||
Net interest income | $ | 5,369 | $ | 5,377 | $ | (8 | ) | $ | 5,369 | $ | 5,274 | $ | 95 | |||||||||||
Fee and other income | 271 | 239 | 32 | 271 | 1,194 | (923 | ) | |||||||||||||||||
Net revenues | 5,640 | 5,616 | 24 | 5,640 | 6,468 | (828 | ) | |||||||||||||||||
Investment gains, net | 166 | 277 | (111 | ) | 166 | 313 | (147 | ) | ||||||||||||||||
Fair value gains (losses), net | 386 | 229 | 157 | 386 | (289 | ) | 675 | |||||||||||||||||
Administrative expenses | (740 | ) | (755 | ) | 15 | (740 | ) | (664 | ) | (76 | ) | |||||||||||||
Credit-related income (expense) | ||||||||||||||||||||||||
Benefit (provision) for credit losses | 716 | 1,296 | (580 | ) | 716 | (182 | ) | 898 | ||||||||||||||||
Foreclosed property expense | (159 | ) | (139 | ) | (20 | ) | (159 | ) | (140 | ) | (19 | ) | ||||||||||||
Total credit-related income (expense) | 557 | 1,157 | (600 | ) | 557 | (322 | ) | 879 | ||||||||||||||||
Temporary Payroll Tax Cut Continuation Act of 2011 (TCCA) fees | (576 | ) | (565 | ) | (11 | ) | (576 | ) | (531 | ) | (45 | ) | ||||||||||||
Other expenses, net | (377 | ) | (366 | ) | (11 | ) | (377 | ) | (427 | ) | 50 | |||||||||||||
Income before federal income taxes | 5,056 | 5,593 | (537 | ) | 5,056 | 4,548 | 508 | |||||||||||||||||
Provision for federal income taxes | (1,045 | ) | (1,136 | ) | 91 | (1,045 | ) | (1,525 | ) | 480 | ||||||||||||||
Net income | $ | 4,011 | $ | 4,457 | $ | (446 | ) | $ | 4,011 | $ | 3,023 | $ | 988 | |||||||||||
Other comprehensive income (loss) | (36 | ) | 2 | (38 | ) | (36 | ) | 25 | (61 | ) | ||||||||||||||
Total comprehensive income | $ | 3,975 | $ | 4,459 | $ | (484 | ) | $ | 3,975 | $ | 3,048 | $ | 927 | |||||||||||
Net revenues, which consist of net interest income and fee and other income, were $5.6 billion for both the third and second quarters of 2018.
Net interest income was $5.4 billion for both the third and the second quarters of 2018. The company’s net interest income in the third quarter of 2018 was derived primarily from guaranty fees on its $3.3 trillion guaranty book of business.
More than 75 percent of Fannie Mae’s net interest income in the third quarter of 2018 was derived from the loans underlying Fannie Mae MBS in consolidated trusts, which primarily generate income through guaranty fees.
Net fair value gains were $386 million in the third quarter of 2018, compared with $229 million in the second quarter of 2018. Net fair value gains in the third quarter of 2018 were driven primarily by increases in the fair value of the company’s mortgage commitment and risk management derivatives due to rising interest rates and longer-term swap rates.
Third Quarter 2018 Results | 3 | |
The estimated fair value of the company’s derivatives, trading securities, and other financial instruments carried at fair value may fluctuate substantially from period to period because of changes in interest rates, the yield curve, mortgage and credit spreads, implied volatility, and activity related to these financial instruments.
Credit-related income (expense) consists of a benefit (provision) for credit losses and foreclosed property expense. Credit-related income was $557 million in the third quarter of 2018, compared with $1.2 billion in the second quarter of 2018. The decrease in credit-related income in the third quarter of 2018 was due to a reduction in the benefit from the redesignation of loans from held-for-investment to held-for-sale and a smaller improvement in home prices compared with the second quarter of 2018.
Third Quarter 2018 Results | 4 | |
PROVIDING LIQUIDITY AND SUPPORT TO THE MARKET
Through Fannie Mae’s single-family and multifamily business segments, the company provided $140 billion in liquidity to the mortgage market in the third quarter of 2018, which enabled the financing of 726,000 home purchases, refinancings, and rental units.
Fannie Mae Provided $140 Billion in Liquidity in the Third Quarter of 2018 
SUMMARY OF THIRD QUARTER 2018 BUSINESS SEGMENT RESULTS
Fannie Mae’s two reportable business segments—Single-Family and Multifamily—engage in complementary business activities in pursuit of Fannie Mae’s vision to be America’s most valued housing partner and to provide liquidity, access to credit, and affordability in all U.S. housing markets at all times. Fannie Mae does this while effectively managing and reducing risk to its business, taxpayers, and the housing finance system. Fannie Mae is advancing this vision by pursuing four strategic objectives: advancing a sustainable and reliable business model that reduces risk to the housing finance system and taxpayers; providing great service to its customers and partners, enabling them to serve the needs of American households more effectively; supporting and sustainably increasing access to credit and affordable housing; and building a simple, efficient, innovative, and continuously improving company.
Third Quarter 2018 Results | 5 | |
Business Segments |
Single-Family Business
Single-Family Segment Financial Results | 3Q18 | 2Q18 | Variance | 3Q18 | 3Q17 | Variance | ||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Net interest income | $ | 4,670 | $ | 4,723 | $ | (53 | ) | $ | 4,670 | $ | 4,627 | $ | 43 | |||||||||||
Fee and other income | 79 | 69 | 10 | 79 | 1,005 | (926 | ) | |||||||||||||||||
Net revenues | 4,749 | 4,792 | (43 | ) | 4,749 | 5,632 | (883 | ) | ||||||||||||||||
Investment gains, net | 146 | 252 | (106 | ) | 146 | 286 | (140 | ) | ||||||||||||||||
Fair value gains (losses), net | 417 | 278 | 139 | 417 | (300 | ) | 717 | |||||||||||||||||
Administrative expenses | (636 | ) | (649 | ) | 13 | (636 | ) | (580 | ) | (56 | ) | |||||||||||||
Credit-related income (expense) | 582 | 1,159 | (577 | ) | 582 | (294 | ) | 876 | ||||||||||||||||
TCCA fees | (576 | ) | (565 | ) | (11 | ) | (576 | ) | (531 | ) | (45 | ) | ||||||||||||
Other expenses, net | (282 | ) | (270 | ) | (12 | ) | (282 | ) | (320 | ) | 38 | |||||||||||||
Income before federal income taxes | 4,400 | 4,997 | (597 | ) | 4,400 | 3,893 | 507 | |||||||||||||||||
Provision for federal income taxes | (938 | ) | (1,044 | ) | 106 | (938 | ) | (1,361 | ) | 423 | ||||||||||||||
Net income | $ | 3,462 | $ | 3,953 | $ | (491 | ) | $ | 3,462 | $ | 2,532 | $ | 930 | |||||||||||
Financial Results
• | Single-Family net income was $3.5 billion in the third quarter of 2018, compared with $4.0 billion in the second quarter of 2018. The decrease in net income in the third quarter of 2018 was driven primarily by a decrease in credit-related income due to a reduction in the benefit from the redesignation of loans from held-for-investment to held-for-sale and a smaller improvement in home prices compared with the second quarter of 2018. |
• | The decrease was partially offset by higher fair value gains due to an increase in rates in the third quarter of 2018 compared with the second quarter of 2018. |
Business Highlights
• | The single-family guaranty book of business continued to grow in the third quarter of 2018, while the average charged guaranty fee (net of TCCA fees) on the single-family guaranty book in the third quarter was relatively consistent with the prior quarter at 43 basis points. |
• | Fannie Mae’s Single-Family business provided $122 billion in liquidity to the mortgage market in the third quarter of 2018, which enabled 360,000 home purchases and 160,000 refinancings. |
• | The single-family serious delinquency rate was 0.82% as of September 30, 2018, compared with 1.24% as of December 31, 2017 and 1.01% as of September 30, 2017. |
◦ | The single-family serious delinquency rate increased in the latter part of 2017 due to the impact of Hurricanes Harvey, Irma, and Maria in 2017, but has since resumed its prior downward trend because many delinquent borrowers in the affected areas have resolved their loan delinquencies by obtaining loan modifications or through resuming payments and becoming current on their loans. The company’s single-family serious delinquency rate may be negatively impacted in the near term as a result of the hurricanes that occurred late in the third quarter of 2018 and early in the fourth quarter of 2018, which may cause some borrowers in the affected regions to miss their payments, including through forbearance arrangements that may be extended. The company is still evaluating the impact, but it does not believe that the hurricanes to date in 2018, individually or in aggregate, will have a material impact on the company’s credit losses or loss reserves. In the longer term, the company expects its single-family serious delinquency rate to continue to decline, but at a more modest pace than in the past several years, and to experience period-to-period fluctuations. |
Third Quarter 2018 Results | 6 | |
Multifamily Business
Multifamily Segment Financial Results | 3Q18 | 2Q18 | Variance | 3Q18 | 3Q17 | Variance | ||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Net interest income | $ | 699 | $ | 654 | $ | 45 | $ | 699 | $ | 647 | $ | 52 | ||||||||||||
Fee and other income | 192 | 170 | 22 | 192 | 189 | 3 | ||||||||||||||||||
Net revenues | 891 | 824 | 67 | 891 | 836 | 55 | ||||||||||||||||||
Fair value gains (losses), net | (31 | ) | (49 | ) | 18 | (31 | ) | 11 | (42 | ) | ||||||||||||||
Administrative expenses | (104 | ) | (106 | ) | 2 | (104 | ) | (84 | ) | (20 | ) | |||||||||||||
Credit-related expense | (25 | ) | (2 | ) | (23 | ) | (25 | ) | (28 | ) | 3 | |||||||||||||
Other expenses, net | (75 | ) | (71 | ) | (4 | ) | (75 | ) | (80 | ) | 5 | |||||||||||||
Income before federal income taxes | 656 | 596 | 60 | 656 | 655 | 1 | ||||||||||||||||||
Provision for federal income taxes | (107 | ) | (92 | ) | (15 | ) | (107 | ) | (164 | ) | 57 | |||||||||||||
Net income | $ | 549 | $ | 504 | $ | 45 | $ | 549 | $ | 491 | $ | 58 | ||||||||||||
Financial Results
• | Multifamily net income was $549 million in the third quarter of 2018, compared with $504 million in the second quarter of 2018. The increase in net income in the third quarter of 2018 was driven primarily by an increase in guaranty fee revenue as the multifamily guaranty book grew during the quarter. |
• | Credit-related expense in the third quarter of 2018 was due to an increase in the allowance for loan losses driven primarily by a slight increase in downgrades in loan risk ratings. Credit-related expense continued to remain low in the third quarter due to the stability of the multifamily market. |
Business Highlights
• | The multifamily guaranty book of business continued to grow in the third quarter of 2018, while the average charged guaranty fee on the multifamily guaranty book decreased slightly from June 30, 2018 to 77 basis points as of September 30, 2018. |
• | New multifamily business volume was $18.2 billion in the third quarter of 2018, an increase from $14.5 billion in the second quarter of 2018. Multifamily new business volume totaled $44.0 billion for the first nine months of 2018, of which approximately 42% counted toward the Federal Housing Finance Agency’s (FHFA) 2018 multifamily volume cap. |
• | Fannie Mae enabled the financing of 206,000 units of multifamily housing in the third quarter of 2018. More than 90% of the multifamily units the company financed were affordable to families earning at or below 120% of the area median income, providing support for both affordable and workforce housing. |
• | The multifamily serious delinquency rate decreased to 0.07% as of September 30, 2018 from 0.11% as of December 31, 2017. The decrease in the multifamily serious delinquency rate since December 31, 2017 resulted mostly from a decrease in delinquent loans subject to forbearance agreements granted to borrowers in the areas affected by the hurricanes in the latter part of 2017. |
Third Quarter 2018 Results | 7 | |
CREDIT RISK TRANSFER TRANSACTIONS
In late 2013, Fannie Mae began entering into credit risk transfer transactions with the goal of transferring, to the extent economically sensible, a portion of the mortgage credit risk on some of the recently acquired loans in its single-family book of business in order to reduce the economic risk to the company and taxpayers of future borrower defaults. Fannie Mae’s primary method of achieving this goal has been through the issuance of its Connecticut Avenue Securities® (CAS) and its Credit Insurance Risk Transfer™ (CIRT™) transactions. In these transactions, the company transfers to investors a portion of the credit risk associated with losses on a reference pool of mortgage loans and in exchange pays investors a premium that effectively reduces the guaranty fee income the company retains on the loans.
As a part of Fannie Mae’s continued effort to innovate and improve its credit risk transfer programs, the company is in the process of executing an enhancement to its credit risk transfer securities that will enable the company to structure future CAS offerings as notes issued by a trust that qualifies as a Real Estate Mortgage Investment Conduit (REMIC). The new REMIC structure will differ from the prior CAS notes that were issued as Fannie Mae corporate debt. Under the prior CAS structure, there can be a significant lag between the time when Fannie Mae recognizes a provision for credit losses and when the company recognizes the related recovery from the CAS transaction. Under current accounting rules, while a credit expense on a loan in a reference pool for a CAS transaction is recorded when it is probable that Fannie Mae has incurred a loss, for the company’s CAS issued beginning in 2016, a recovery is recorded only when an actual loss event occurs, which is typically several months after the collateral has been liquidated. The new CAS structure will eliminate this timing mismatch, allowing Fannie Mae to recognize the credit loss protection benefit at the same time the credit loss is recognized in the company’s condensed consolidated financial statements.
The enhancements to the company’s CAS program are designed to promote the continued growth of the market by expanding the potential investor base for these securities and limiting investor exposure to Fannie Mae counterparty risk, without disrupting the To-Be-Announced (TBA) MBS market. Fannie Mae expects to issue CAS under the new REMIC structure in November 2018.
Fannie Mae continued to transfer a portion of the credit risk on multifamily mortgages, and nearly 100% of the company’s new multifamily business volume had lender risk-sharing primarily through the company’s Delegated Underwriting and Servicing (DUS®) model in the third quarter of 2018. To complement the company’s lender loss sharing program through DUS, Fannie Mae also transferred a portion of the mortgage credit risk on multifamily loans in its multifamily guaranty book of business to insurers or reinsurers through multifamily Credit Insurance Risk Transfer™ (CIRT™) transactions. In August 2018, the company completed its third multifamily CIRT transaction since the inception of the program, which covered multifamily loans with an unpaid principal balance of approximately $11.1 billion.
FINANCIAL PERFORMANCE OUTLOOK
Fannie Mae expects to remain profitable on an annual basis for the foreseeable future; however, certain factors could result in significant volatility in the company’s financial results from quarter to quarter or year to year. Fannie Mae expects volatility from quarter to quarter in its financial results due to a number of factors, particularly changes in market conditions that result in fluctuations in the estimated fair value of the financial instruments that it marks to market through its earnings. Other factors that may result in volatility in the company’s quarterly financial results include developments that affect its loss reserves, such as changes in interest rates, home prices or accounting standards, or events such as natural disasters.
The potential for significant volatility in the company’s financial results could result in a net loss in a future quarter. The company is permitted to retain up to $3.0 billion in capital reserves as a buffer in the event of a net loss in a future quarter. However, any net loss the company experiences in the future could be greater than the amount of its capital reserves, resulting in a net worth deficit for that quarter. See “Risk Factors” in the company’s Form 10-K for the year ended December 31, 2017 (2017 Form 10-K) for a discussion of the risks associated with the limitations on the company’s ability to rebuild its capital reserves, including factors that could result in a net loss or net worth deficit in a future quarter.
Third Quarter 2018 Results | 8 | |
ABOUT FANNIE MAE’S CONSERVATORSHIP AND AGREEMENTS WITH TREASURY
Fannie Mae has operated under the conservatorship of FHFA since September 6, 2008. Treasury has made a commitment under a senior preferred stock purchase agreement to provide funding to Fannie Mae under certain circumstances if the company has a net worth deficit. Pursuant to this agreement and the senior preferred stock the company issued to Treasury in 2008, the conservator has declared and directed Fannie Mae to pay dividends to Treasury on a quarterly basis for every dividend period for which dividends were payable since the company entered into conservatorship in 2008.
The chart below shows the funds Fannie Mae has drawn from Treasury pursuant to the senior preferred stock purchase agreement, as well as the dividend payments the company has made to Treasury on the senior preferred stock, since entering into conservatorship.
__________
(1) | Under the terms of the senior preferred stock purchase agreement, dividend payments the company makes to Treasury do not offset prior draws of funds from Treasury, and the company is not permitted to pay down draws it has made under the agreement except in limited circumstances. Amounts may not sum due to rounding. |
(2) | Treasury draws are shown in the period for which requested, not when the funds were received by the company. Draw requests have been funded in the quarter following a net worth deficit. |
Fannie Mae expects to pay Treasury a fourth quarter 2018 dividend of $4.0 billion by December 31, 2018. The current dividend provisions of the senior preferred stock provide for quarterly dividends consisting of the amount, if any, by which the company’s net worth as of the end of the immediately preceding fiscal quarter exceeds a $3.0 billion capital reserve amount. The company refers to this as a “net worth sweep” dividend. The company’s net worth was $7.0 billion as of September 30, 2018.
If Fannie Mae experiences a net worth deficit in a future quarter, the company will be required to draw additional funds from Treasury under the senior preferred stock purchase agreement to avoid being placed into receivership. As of the date of this release, the maximum amount of remaining funding under the agreement is $113.9 billion. If the company were to draw additional funds from Treasury under the agreement with respect to a future period, the amount of remaining funding under the agreement would be reduced by the amount of its draw. Dividend payments Fannie Mae makes to Treasury do not restore or increase the amount of funding available to the company under the
Third Quarter 2018 Results | 9 | |
agreement. For a description of the terms of the senior preferred stock purchase agreement and the senior preferred stock, see “Business—Conservatorship and Treasury Agreements—Treasury Agreements” in the company’s 2017 Form 10-K.
Fannie Mae’s financial statements for the third quarter of 2018 are available in the accompanying Annex; however, investors and interested parties should read the company’s quarterly report on Form 10-Q for the quarter ended September 30, 2018 (Third Quarter 2018 Form 10-Q), which was filed today with the Securities and Exchange Commission and is available on Fannie Mae’s website, www.fanniemae.com. The company provides further discussion of its financial results and condition, credit performance, and other matters in its Third Quarter 2018 Form 10-Q. Additional information about the company’s financial and credit performance is contained in the “Fannie Mae Quarterly Financial Supplement” for the third quarter of 2018 at www.fanniemae.com.
# # #
In this release, the company has presented a number of estimates, forecasts, expectations, and other forward-looking statements, including statements regarding: future dividend payments on the senior preferred stock; the company’s profitability, financial condition and results of operations, and the factors that will affect the company’s profitability, financial condition and results of operations; the company’s future credit risk transfer activity and the impact of such activity; and the company’s future serious delinquency rates and the factors that will affect the company’s single-family serious delinquency rates. These estimates, forecasts, expectations, and statements are forward-looking statements based on the company’s current assumptions regarding numerous factors. Actual results, and future projections, could be materially different from what is set forth in the forward-looking statements as a result of: home price changes; interest rate changes; unemployment rates; other macroeconomic and housing market variables; the company’s future serious delinquency rates; the company’s future guaranty fee pricing and the impact of that pricing on the company’s guaranty fee revenues and competitive environment; government policy; credit availability; changes in borrower behavior; the volume of loans it modifies; the effectiveness of its loss mitigation strategies; significant changes in modification and foreclosure activity; the volume and pace of future nonperforming and reperforming loan sales and their impact on the company’s results and serious delinquency rates; the effectiveness of its management of its real estate owned inventory and pursuit of contractual remedies; changes in the fair value of its assets and liabilities; future legislative or regulatory requirements or changes that have a significant impact on the company’s business, such as the enactment of housing finance reform legislation; actions by FHFA, Treasury, the Department of Housing and Urban Development or other regulators that affect the company’s business; the size, composition and quality of the company’s guaranty book of business and retained mortgage portfolio; the company’s market share; the life of the loans in the company’s guaranty book of business; future updates to the company’s models relating to loss reserves, including the assumptions used by these models; changes in generally accepted accounting principles; changes to the company’s accounting policies; whether the company’s counterparties meet their obligations in full; effects from activities the company takes to support the mortgage market and help borrowers; the company’s future objectives and activities in support of those objectives, including actions the company may take to reach additional underserved creditworthy borrowers; actions the company may be required to take by FHFA, in its role as the company’s conservator or as its regulator, such as changes in the type of business the company does or the implementation of the Single Security Initiative; limitations on the company’s business imposed by FHFA, in its role as the company’s conservator or as its regulator; the conservatorship and its effect on the company’s business; the investment by Treasury and its effect on the company’s business; the uncertainty of the company’s future; challenges the company faces in retaining and hiring qualified executives and other employees; the deteriorated credit performance of many loans in the company’s guaranty book of business; a decrease in the company’s credit ratings; defaults by one or more institutional counterparties; resolution or settlement agreements the company may enter into with its counterparties; operational control weaknesses; changes in the fiscal and monetary policies of the Federal Reserve, including implementation of the Federal Reserve’s balance sheet normalization program; changes in the structure and regulation of the financial services industry; the company’s ability to access the debt markets; disruptions in the housing, credit, and stock markets; government investigations and litigation; the company’s reliance on and the performance of the company’s servicers; conditions in the foreclosure environment; global political risks; natural disasters, environmental disasters, terrorist attacks, pandemics, or other major disruptive events; cyber attacks or other information security breaches or threats; and many other factors, including those discussed in the “Risk Factors” and “Forward-Looking Statements” sections of and elsewhere in the company’s 2017 Form 10-K, Third Quarter 2018 Form 10-Q, and elsewhere in this release.
Fannie Mae provides website addresses in its news releases solely for readers’ information. Other content or information appearing on these websites is not part of this release.
Fannie Mae helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit fanniemae.com and follow us on twitter.com/fanniemae.
Third Quarter 2018 Results | 10 | |
ANNEX
FANNIE MAE
(In conservatorship)
Condensed Consolidated Balance Sheets — (Unaudited)
(Dollars in millions, except share amounts)
As of | |||||||||||
September 30, | December 31, | ||||||||||
2018 | 2017 | ||||||||||
ASSETS | |||||||||||
Cash and cash equivalents | $ | 27,789 | $ | 32,110 | |||||||
Restricted cash (includes $17,835 and $22,132, respectively, related to consolidated trusts) | 23,242 | 28,150 | |||||||||
Federal funds sold and securities purchased under agreements to resell or similar arrangements | 26,598 | 19,470 | |||||||||
Investments in securities: | |||||||||||
Trading, at fair value (includes $3,734 and $747, respectively, pledged as collateral) | 43,901 | 34,679 | |||||||||
Available-for-sale, at fair value | 3,537 | 4,843 | |||||||||
Total investments in securities | 47,438 | 39,522 | |||||||||
Mortgage loans: | |||||||||||
Loans held for sale, at lower of cost or fair value | 10,572 | 4,988 | |||||||||
Loans held for investment, at amortized cost: | |||||||||||
Of Fannie Mae | 126,674 | 162,809 | |||||||||
Of consolidated trusts | 3,111,551 | 3,029,812 | |||||||||
Total loans held for investment (includes $9,153 and $10,596, respectively, at fair value) | 3,238,225 | 3,192,621 | |||||||||
Allowance for loan losses | (15,663 | ) | (19,084 | ) | |||||||
Total loans held for investment, net of allowance | 3,222,562 | 3,173,537 | |||||||||
Total mortgage loans | 3,233,134 | 3,178,525 | |||||||||
Deferred tax assets, net | 14,368 | 17,350 | |||||||||
Accrued interest receivable, net (includes $8,234 and $7,560, respectively, related to consolidated trusts) | 8,792 | 8,133 | |||||||||
Acquired property, net | 2,722 | 3,220 | |||||||||
Other assets | 17,022 | 19,049 | |||||||||
Total assets | $ | 3,401,105 | $ | 3,345,529 | |||||||
LIABILITIES AND EQUITY (DEFICIT) | |||||||||||
Liabilities: | |||||||||||
Accrued interest payable (includes $8,942 and $8,598, respectively, related to consolidated trusts) | $ | 10,105 | $ | 9,682 | |||||||
Debt: | |||||||||||
Of Fannie Mae (includes $7,251 and $8,186, respectively, at fair value) | 246,682 | 276,752 | |||||||||
Of consolidated trusts (includes $24,948 and $30,493, respectively, at fair value) | 3,127,688 | 3,053,302 | |||||||||
Other liabilities (includes $322 and $492, respectively, related to consolidated trusts) | 9,655 | 9,479 | |||||||||
Total liabilities | 3,394,130 | 3,349,215 | |||||||||
Commitments and contingencies (Note 14) | — | — | |||||||||
Fannie Mae stockholders’ equity (deficit): | |||||||||||
Senior preferred stock, 1,000,000 shares issued and outstanding | 120,836 | 117,149 | |||||||||
Preferred stock, 700,000,000 shares are authorized—555,374,922 shares issued and outstanding | 19,130 | 19,130 | |||||||||
Common stock, no par value, no maximum authorization—1,308,762,703 shares issued and 1,158,087,567 shares outstanding | 687 | 687 | |||||||||
Accumulated deficit | (126,591 | ) | (133,805 | ) | |||||||
Accumulated other comprehensive income | 313 | 553 | |||||||||
Treasury stock, at cost, 150,675,136 shares | (7,400 | ) | (7,400 | ) | |||||||
Total stockholders’ equity (deficit) (See Note 1: Senior Preferred Stock Purchase Agreement and Senior Preferred Stock for information on our dividend obligation to Treasury) | 6,975 | (3,686 | ) | ||||||||
Total liabilities and equity (deficit) | $ | 3,401,105 | $ | 3,345,529 | |||||||
See Notes to Condensed Consolidated Financial Statements in the Third Quarter 2018 Form 10-Q
Third Quarter 2018 Results | 11 | |
FANNIE MAE
(In conservatorship)
Condensed Consolidated Statements of Operations and Comprehensive Income — (Unaudited)
(Dollars in millions, except share amounts)
For the Three Months | For the Nine Months | ||||||||||||||||||||||
Ended September 30, | Ended September 30, | ||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||
Interest income: | |||||||||||||||||||||||
Trading securities | $ | 363 | $ | 195 | $ | 917 | $ | 513 | |||||||||||||||
Available-for-sale securities | 54 | 77 | 175 | 269 | |||||||||||||||||||
Mortgage loans (includes $27,058 and $25,168, respectively, for the three months ended and $79,877 and $75,155, respectively, for the nine months ended related to consolidated trusts) | 28,723 | 27,047 | 85,064 | 81,105 | |||||||||||||||||||
Other | 204 | 142 | 559 | 351 | |||||||||||||||||||
Total interest income | 29,344 | 27,461 | 86,715 | 82,238 | |||||||||||||||||||
Interest expense: | |||||||||||||||||||||||
Short-term debt | (114 | ) | (72 | ) | (331 | ) | (173 | ) | |||||||||||||||
Long-term debt (includes $22,361 and $20,609, respectively, for the three months ended and $65,972 and $61,622, respectively, for the nine months ended related to consolidated trusts) | (23,861 | ) | (22,115 | ) | (70,406 | ) | (66,443 | ) | |||||||||||||||
Total interest expense | (23,975 | ) | (22,187 | ) | (70,737 | ) | (66,616 | ) | |||||||||||||||
Net interest income | 5,369 | 5,274 | 15,978 | 15,622 | |||||||||||||||||||
Benefit (provision) for credit losses | 716 | (182 | ) | 2,229 | 1,481 | ||||||||||||||||||
Net interest income after benefit (provision) for credit losses | 6,085 | 5,092 | 18,207 | 17,103 | |||||||||||||||||||
Investment gains, net | 166 | 313 | 693 | 689 | |||||||||||||||||||
Fair value gains (losses), net | 386 | (289 | ) | 1,660 | (1,020 | ) | |||||||||||||||||
Fee and other income | 271 | 1,194 | 830 | 1,796 | |||||||||||||||||||
Non-interest income | 823 | 1,218 | 3,183 | 1,465 | |||||||||||||||||||
Administrative expenses: | |||||||||||||||||||||||
Salaries and employee benefits | (355 | ) | (331 | ) | (1,101 | ) | (1,007 | ) | |||||||||||||||
Professional services | (247 | ) | (218 | ) | (744 | ) | (681 | ) | |||||||||||||||
Other administrative expenses | (138 | ) | (115 | ) | (400 | ) | (346 | ) | |||||||||||||||
Total administrative expenses | (740 | ) | (664 | ) | (2,245 | ) | (2,034 | ) | |||||||||||||||
Foreclosed property expense | (159 | ) | (140 | ) | (460 | ) | (391 | ) | |||||||||||||||
Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees | (576 | ) | (531 | ) | (1,698 | ) | (1,552 | ) | |||||||||||||||
Other expenses, net | (377 | ) | (427 | ) | (946 | ) | (1,100 | ) | |||||||||||||||
Total expenses | (1,852 | ) | (1,762 | ) | (5,349 | ) | (5,077 | ) | |||||||||||||||
Income before federal income taxes | 5,056 | 4,548 | 16,041 | 13,491 | |||||||||||||||||||
Provision for federal income taxes | (1,045 | ) | (1,525 | ) | (3,312 | ) | (4,495 | ) | |||||||||||||||
Net income | 4,011 | 3,023 | 12,729 | 8,996 | |||||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||
Changes in unrealized gains on available-for-sale securities, net of reclassification adjustments and taxes | (33 | ) | 27 | (349 | ) | (46 | ) | ||||||||||||||||
Other | (3 | ) | (2 | ) | (8 | ) | (6 | ) | |||||||||||||||
Total other comprehensive income (loss) | (36 | ) | 25 | (357 | ) | (52 | ) | ||||||||||||||||
Total comprehensive income | $ | 3,975 | $ | 3,048 | $ | 12,372 | $ | 8,944 | |||||||||||||||
Net income | $ | 4,011 | $ | 3,023 | $ | 12,729 | $ | 8,996 | |||||||||||||||
Dividends distributed or available for distribution to senior preferred stockholder | (3,975 | ) | (3,048 | ) | (9,372 | ) | (8,944 | ) | |||||||||||||||
Net income (loss) attributable to common stockholders | $ | 36 | $ | (25 | ) | $ | 3,357 | $ | 52 | ||||||||||||||
Earnings (loss) per share: | |||||||||||||||||||||||
Basic | $ | 0.01 | $ | 0.00 | $ | 0.58 | $ | 0.01 | |||||||||||||||
Diluted | 0.01 | 0.00 | 0.57 | 0.01 | |||||||||||||||||||
Weighted-average common shares outstanding: | |||||||||||||||||||||||
Basic | 5,762 | 5,762 | 5,762 | 5,762 | |||||||||||||||||||
Diluted | 5,893 | 5,762 | 5,893 | 5,893 | |||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements in the Third Quarter 2018 Form 10-Q
Third Quarter 2018 Results | 12 | |
FANNIE MAE
(In conservatorship)
Condensed Consolidated Statements of Cash Flows — (Unaudited)
(Dollars in millions)
For the Nine Months Ended September 30, | |||||||||||
2018 | 2017 | ||||||||||
Net cash provided by (used in) operating activities | $ | (1,796 | ) | $ | 172 | ||||||
Cash flows provided by investing activities: | |||||||||||
Proceeds from maturities and paydowns of trading securities held for investment | 163 | 1,088 | |||||||||
Proceeds from sales of trading securities held for investment | 96 | 149 | |||||||||
Proceeds from maturities and paydowns of available-for-sale securities | 564 | 1,671 | |||||||||
Proceeds from sales of available-for-sale securities | 729 | 1,207 | |||||||||
Purchases of loans held for investment | (135,913 | ) | (142,565 | ) | |||||||
Proceeds from repayments of loans acquired as held for investment of Fannie Mae | 11,651 | 17,721 | |||||||||
Proceeds from sales of loans acquired as held for investment of Fannie Mae | 10,637 | 5,399 | |||||||||
Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts | 306,374 | 323,424 | |||||||||
Advances to lenders | (83,643 | ) | (89,348 | ) | |||||||
Proceeds from disposition of acquired property and preforeclosure sales | 7,090 | 9,671 | |||||||||
Net change in federal funds sold and securities purchased under agreements to resell or similar arrangements | (7,128 | ) | 6,675 | ||||||||
Other, net | (56 | ) | 344 | ||||||||
Net cash provided by investing activities | 110,564 | 135,436 | |||||||||
Cash flows used in financing activities: | |||||||||||
Proceeds from issuance of debt of Fannie Mae | 636,466 | 776,380 | |||||||||
Payments to redeem debt of Fannie Mae | (666,888 | ) | (809,299 | ) | |||||||
Proceeds from issuance of debt of consolidated trusts | 278,357 | 282,433 | |||||||||
Payments to redeem debt of consolidated trusts | (364,942 | ) | (383,969 | ) | |||||||
Payments of cash dividends on senior preferred stock to Treasury | (5,397 | ) | (11,367 | ) | |||||||
Proceeds from senior preferred stock purchase agreement with Treasury | 3,687 | — | |||||||||
Other, net | 720 | 88 | |||||||||
Net cash used in financing activities | (117,997 | ) | (145,734 | ) | |||||||
Net decrease in cash, cash equivalents and restricted cash | (9,229 | ) | (10,126 | ) | |||||||
Cash, cash equivalents and restricted cash at beginning of period | 60,260 | 62,177 | |||||||||
Cash, cash equivalents and restricted cash at end of period | $ | 51,031 | $ | 52,051 | |||||||
Cash paid during the period for: | |||||||||||
Interest | $ | 82,010 | $ | 82,652 | |||||||
Income taxes | 460 | 1,670 | |||||||||
See Notes to Condensed Consolidated Financial Statements in the Third Quarter 2018 Form 10-Q
Third Quarter 2018 Results | 13 | |
Exhibit 99.2 FannieMae Quarterly FinancialSupplement Q32018 N ovem ber 2, 2018November 2, © 2018 Fannie Mae. Trademarks of Fannie Mae.Fannie TrademarksMae.of © Fannie 2018
§ Some of the terms and other information in this presentation are defined and discussed more fully in Fannie Mae’s Form 10-Q for the quarter ended September 30, 2018 (“Q3 2018 10-Q”) and Form 10-K for the year ended December 31, 2017 (“2017 Form 10-K”). This presentation should be reviewed together with the Q3 2018 10-Q and the 2017 Form 10-K, which are available at www.fanniemae.com in the “About Us—Investor Relations—SEC Filings” section. Information on or available through the company's website is not part of this supplement. § Some of the information in this presentation is based upon information from third-party sources such as sellers and servicers of mortgage loans. Although we generally consider this information reliable, we do not independently verify all reported information. § Due to rounding, amounts reported in this presentation may not add to totals indicated (or 100%). § Unless otherwise indicated, data labeled as "YTD 2018" is as of September 30, 2018 or for the first nine months of 2018. Data for prior years is as of December 31 or for the full year indicated. § Note references are to endnotes, appearing on pages 22 to 24. § Terms used in presentation CAS: Connecticut Avenue Securities® CIRT™: Credit Insurance Risk Transfer™ CRT: credit risk transfer DTI ratio: Debt-to-income ratio DUS® : Fannie Mae’s Delegated Underwriting and Servicing program GDP: U.S. gross domestic product HARP ®: Home Affordable Refinance Program, which allows eligible Fannie Mae borrowers with high LTV ratio loans to refinance into more sustainable loans LTV ratio: loan-to-value ratio MSA: metropolitan statistical area MTMLTV ratio: mark-to-market loan-to-value ratio OLTV ratio: origination loan-to-value ratio Refi Plus™: our Refi Plus initiative, which offers refinancing flexibility to eligible Fannie Mae borrowers REO: real estate owned TCCA: Temporary Payroll Tax Cut Continuation Act of 2011 UPB: unpaid principal balance © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 1
Table of Contents Financial Overview Corporate Financial Highlights 4 Market Liquidity 5 Key Market Economic Indicators 6 Treasury Draws and Dividend Payments 7 Single-Family Business Single-Family Highlights 9 Certain Credit Characteristics of Single-Family Loan Acquisitions 10 Certain Credit Characteristics of Single-Family Conventional Guaranty Book of Business 11 Single-Family Credit Risk Transfer 12 Single-Family Problem Loan Statistics 13 Credit Loss Concentration of Single-Family Conventional Guaranty Book of Business 14 Single-Family Cumulative Default Rates 15 Multifamily Business Multifamily Highlights 17 Certain Credit Characteristics of Multifamily Acquisitions 18 Certain Credit Characteristics of Multifamily Guaranty Book of Business 19 Multifamily Serious Delinquency Rates and Credit Losses 20 Endnotes Financial Overview Endnotes 22 Single-Family Business Endnotes 23 Multifamily Business Endnotes 24 © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 2
Financial Overview © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 3
Corporate Financial Highlights Sources of Net Interest Income and Retained Mortgage Summary of Q3 2018 Financial Results Portfolio Balance 3Q18 2Q18 Variance 100% $1,000 Net interest income $5,369 $5,377 ($8) $800 80% Fee and other income ______2_7_1_________2_3_9__________3_2_ $600 60% NNet reevveennuueses 5,640 5,616 24 $400 Investment gains, net 166 277 (111) 40% $413.3 $345.1 % N $272.4 e $200 Fair value gains, net 386 229 157 t 20% $230.8 I $199.1 n t R e e r t e a Administrative expenses (740) (755) 15 s 0% $0 i t n I e n 2014 2015 2016 2017 YTD 2018 d c o M m Credit-related income o e Net interest income from retained mortgage portfolio and other activities r t (1) g Net interest income from guaranty fees and other consolidated trust income a g e Benefit for credit losses 716 1,296 (580) Retained mortgage portfolio at end of period P o r t f o l i Foreclosed property expense (159) (139) (20) o _______________________________ ( $ ) Key Highlights B i l Total credit-related income 557 1,157 (600) l i o n Temporary Payroll Tax Cut Continuation Act of 2011 s (576) (565) (11) § Fannie Mae reported net income of $4.0 billion for Q3 2018 (TCCA) fees reflecting the strength of the company’s business fundamentals. Fannie Mae’s pre-tax income was $5.1 billion for Q3 2018. Other expenses, net (377) (366) (11) _______________________________ § The decrease in net income in Q3 2018 was driven primarily by a Income before federal income taxes 5,056 5,593 (537) decrease in credit-related income due primarily to a reduction in the benefit from the redesignation of loans from held-for-investment Provision for federal income taxes (1,045) (1,136) 91 to held-for-sale and a smaller improvement in home prices compared _______________________________ with Q2 2018. The decrease was partially offset by higher fair value Neett I innccoomme e $4,011 $4,457 ($446) gains in Q3 2018 compared with Q2 2018. Other comprehensive income (loss) (36) 2 (38) _______________________________ Tottaall c coommprperheehnesinves iivnec oimnceome $3,975 $4,459 ($484) _______________________________ © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 4
Market Liquidity Key Highlights: Providing Liquidity to the Mortgage Market Liquidity Provided Fannie Mae provided $389 billion in liquidity to the mortgage market in the first nine months of 2018, through its purchases of loans and guarantees of loans and securities, which enabled the financing of: 3.0M 0.7M 0.8M 2.5M 910K 0.6M Home Purchases 0.4M 2.0M 1.1M 0.5M 1.0M 1.2M 1.5M 571K 0.9M Refinancings 1.0M 0.9M 1.4M 1.2M 1.0M 548K 0.5M 0.9M Rental Units 0.6M 0.0M 2014 2015 2016 2017 YTD 2018 Rental Units Mortgage Refinancings (Loans) Home Purchases (Loans) © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 5
Key Market Economic Indicators (2) U.S. GDP Growth Rate and Benchmark Interest Rates Single-Family Home Price Growth Rate (3) Unemployment Rate 6.0% 5.7% 5.7% 5.7% 3.81% 6.0% 5.60% 4.0% 4.6% 5.00% 4.2% 4.70% 3.00% 3.13% 3.06% 4.10% 2.83% 3.00% 4.0% 3.70% 4.0% 2.45% 2.41% 2.17% 2.27% 2.98% 2.40% 2.60% 2.0% 2.30% 3.50% 2.08% 2.0% 2.0% 1.50% H R 1.45% R o a 1.18% a m t t e e 0.90% e ( ( 0.0% P 0.0% 0.0% a a r s s i c o o 2014 2015 2016 2017 YTD 2018 e 2014 2015 2016 2017 YTD 2018 2014 2015 2016 2017 YTD 2018 f f G p p e e 10-year Treasury rate r Change based on Fannie Mae national home price index U.S. GDP Growth Rate, annualized for most recent period o r r i i w o o U.S. Unemployment Rate t d 2-year swap rate d h e e n 30-year Fannie MBS par coupon rate n d d ) ) One Year Home Price Change as of Q3 2018 (2) United States 6.0% Top 10 States by UPB (2) WA ND MT MN Share of Fannie ME Mae Single-Family SD WI State Home Price Conventional OR ID NH Growth Rate Guaranty Book WY MI NY CA 8.6% 19.4% IA MA 4.4% 6.3% AK NE TX PA FL 7.2% 5.7% IL IN OH NJ NY 6.2% 5.0% NV UT MD CO WA 9.9% 3.7% KS MO WV DE KY VA IL 3.7% 3.6% CA NJ 4.6% 3.6% OK TN NC VA 3.7% 3.4% AZ NM AR CO 7.8% 3.1% SC PA 4.8% 3.0% MS AL GA TX LA State Growth Rate 0 to 4.9% HI FL 5 to 9.9% 10% and above © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 6
Treasury Draws and Dividend Payments Treasury Draws and Dividend Payments: 2008 - YTD 2018 $180.0 $171.8 $160.0 $144.8 $140.0 $119.8 $120.0 $116.1 $100.0 ( $ ) B $80.0 i l l i o n s $60.0 $40.0 $20.0 $12.0 $9.6 $3.7 $5.4 $0.0 $0.0 $0.0 (4) Draws from2008-D20iv1i5dend payments Draws from 20D16ividend payments Draws from 20D1i7vidend payments Draws fromYTD 2D0i1v8idend payments Draws from TotDailvidend payments Treasury to Treasury Treasury to Treasury Treasury to Treasury Treasury to Treasury Treasury to Treasury (5) Draws from Treasury Dividend payments to Treasury © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 7
Single-Family Business © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 8
Single-Family Highlights (1) (1) Q3 2018 Single-Family Conventional Loan Acquisitions Conventional Guaranty Book of Business $200 $4,000 50 50 51.2 42.4 43.4 49.0 42.6 42.8 43.0 47.1 47.1 45.4 40 $4,670M $150 40 $3,000 $2,835 $2,850 $2,870 $2,877 $2,890 $134 Net interest income $128 $122 $112 $110 30 30 $50 $35 $100 $59 $2,000 $39 $52 B 20 B 20 a a U U s s i i P P s s B B P P o o ( $50 ( $1,000 $ $ i i $88 n n ) $84 ) $582M t 10 t B 10 B $69 $72 s s i $60 i l l Credit-related income l l i i o o n n s $0 0 s $0 0 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 (2) Refinance Average charged guaranty fee on conventional guaranty book, net of TCCA (bps) Purchase Average UPB outstanding of Single-Family conventional guaranty book (2) $417M Average charged guaranty fee on new acquisitions, net of TCCA (bps) Fair value gains, net Q3 2018 Market Share: New Single-Family Key Highlights Mortgage-Related Securities Issuances Private-label securities § Single-Family net income was $3.5 billion in Q3 2018, compared 3% with $4.0 billion in Q2 2018. The decrease in net income in Q3 2018 was driven primarily by a decrease in credit-related income $146M Ginnie Mae due to a reduction in the benefit from the redesignation of loans Investment gains, net 32% from held-for-investment to held-for-sale and a smaller Fannie Mae improvement in home prices compared with Q2 2018. 40% § The decrease was partially offset by higher fair value gains due to an increase in rates in Q3 2018 compared with Q2 2018. § The single-family guaranty book of business continued to grow in $3,462M Q3 2018, while the average charged guaranty fee (net of TCCA Net income fees) on the single-family guaranty book was relatively consistent Freddie Mac with the prior quarter at 43 basis points. 25% © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 9
Certain Credit Characteristics of Single-Family Loan Acquisitions YTD 2018 Acquisition Certain Credit Characteristics of Single-Family Conventional Loans Credit Profile by by Acquisition Period Certain Product Features Loans with Loans with Loans with OLTV FICO Credit DTI (1) (3) (4) Categories are not mutually exclusive Q3 2017 Q4 2017 Full Year 2017 Q1 2018 Q2 2018 Q3 2018 Ratio > 90% Score < 660 Ratio > 45% Total Unpaid Principal Balance (UPB) ($B) $134.2 $127.9 $501.8 $112.2 $110.5 $122.3 $75.6 $20.3 $84.2 Total UPB excluding Refi Plus ($B) $131.5 $125.2 $487.7 $110.3 $109.1 $121.4 $75.1 $19.3 $84.2 Weighted Average Origination LTV (OLTV) Ratio 76% 76% 75% 75% 77% 78% 96% 74% 77% Origination LTV Ratio > 90% 20% 18% 18% 19% 23% 24% 100% 18% 22% ® (3) Weighted Average FICO Credit Score 745 743 745 743 743 743 738 641 734 (3) FICO Credit Score < 660 5% 6% 6% 6% 6% 6% 5% 100% 7% DTI Ratio > 45%(4) 8% 19% 10% 23% 26% 25% 25% 29% 100% Fixed-rate 97% 98% 97% 98% 98% 98% 100% 100% 99% Condo/Co-op 10% 10% 10% 9% 10% 10% 9% 7% 10% Origination (3) FICO Credit Score Acquisitions by Loan Purpose Loan-to-Value Ratio 100% 30% 800 100% 744 748 750 745 743 14% 12% 13% 20% 80% 77% 77% 12% 75% 74% 75% 22% 80% 20% 30% 33% 600 22% 10% 18% 20% 22% 60% 18% 16% 60% 16% 15% 8% 19% 19% 400 7% 6% 6% 40% 5% 6% 40% 10% 4% S 64% O h 4% F 56% a r I 52% i r 200 C g e W 45% 44% O 20% i n o 20% e a f C W i t A g 2% r i e e h o c d i n q t g e i u h t L d i t 0% 0% 0 0% S T s 0% e A i c V d t v o i o e 2014 2015 2016 2017 YTD 2018 2014 2015 2016 2017 YTD 2018 r A > 2014 2015 2016 2017 YTD 2018 e r n v a 9 s < e g 0 r e 6 a OLTV > 90% % FICO Credit Score < 660 6 g Refi Plus including HARP O e 0 L Weighted Average OLTV Ratio F Weighted Average FICO Credit Score T I Refinance (excluding cash-out & Refi Plus) V C O R Cash-out refinance a C t r i e o Purchase d i t S c o © 2018 Fannie Mae. Trademarks of Fannie Mae. r Q3 2018 Financial Supplement 10 e
Certain Credit Characteristics of Single-Family Conventional Guaranty Book of Business Certain Credit Characteristics of Single-Family Conventional Guaranty Book of Business by Origination Year and Product Features(5) Origination Year Certain Product Features (1) (3) As of September 30, 2018 Loans with Overall 2004 & Refi Plus FICO Credit Origination LTV (6) Categories are not mutually exclusive Book Earlier 2005-2008 2009-2015 2016 2017 2018 Including HARP Alt-A Score < 660 Ratio > 90% Total Unpaid Principal Balance (UPB) ($B) $2,896.5 $84.3 $147.5 $1,458.3 $475.7 $442.0 $288.7 $341.3 $60.0 $195.1 $506.2 Average Unpaid Principal Balance $169,600 $71,474 $126,397 $157,808 $215,119 $218,057 $230,379 $135,378 $136,036 $134,534 $178,137 Share of Single-Family Conventional Guaranty Book 100% 3% 5% 50% 16% 15% 10% 12% 2% 7% 17% (7) Serious Delinquency Rate 0.82% 2.77% 4.90% 0.44% 0.25% 0.18% 0.02% 0.71% 3.68% 3.67% 1.25% Weighted Average Origination LTV Ratio 75% 74% 76% 75% 74% 76% 77% 86% 80% 79% 101% Origination LTV Ratio > 90% 17% 14% 15% 17% 16% 19% 23% 38% 19% 24% 100% (8) Weighted Average Mark-to-Market LTV Ratio 56% 38% 62% 48% 60% 68% 75% 53% 58% 60% 76% (3) Weighted Average FICO Credit Score 745 700 695 752 751 744 743 730 709 629 733 (9) Share of Loans with Credit Enhancement 45% 7% 18% 37% 64% 69% 45% 11% 8% 34% 75% Fixed-rate 96% 80% 69% 98% 99% 98% 98% 99% 73% 92% 98% Weighted Average Mark-To-Market (3) (7) (10) FICO Credit Score Serious Delinquency Rate by Vintage Loan-to-Value (MTMLTV) Ratio 70% 10% 800 745 745 745 20% 8.39% 64% 744 744 62% 8.0% 60% 7.60% 60% 58% 56% 8% 6.39% 6.55% 600 15% 50% 6.0% 6% 40% 4.90% 5% 400 10% 4.0% 30% 8% 8% 4% 7% 3.26% 3.28% 7% 7% 3.06% 3% 2.82% % 2.77% M S 20% % e W T r 200 5% F M 1.89% i e o 2% I 2.0% i u C L g 1.55% 2% W 1.20% s h T O 1.24% e t D V e i 10% C g 1% e d > 0.82% r h l e i A t 1 n 0.53% 1% d e 0 v 0.36% q 0.35% 0.36% 0.34% i d e t 0 u r S A % e a 0% 0% 0 0% 0.0% c n v g o e c e r r y 2014 2015 2016 2017 YTD 2018 2014 2015 2016 2017 YTD 2018 2014 2015 2016 2017 YTD 2018 e M a R g < T e a M 6 t F % MTMLTV > 100% % FICO Credit Score < 660 e 6 I L Total single-family conventional guaranty book of business 0 C T O V Weighted Average MTMLTV Weighted Average FICO Credit Score 2004 and Prior C r e 2005-2008 d i t S 2009-2018 c o r e © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 11
Single-Family Credit Risk Transfer Single-Family Loans Included in Credit Risk Transfer Single-Family Loans with Credit Enhancement Transactions, Balance of Covered Loans $1,500 38% 40% 2016 2017 YTD 2018 Percent of Percent of Percent of 32% Credit Enhancement Outstanding Book Outstanding Book Outstanding Book UPB Outstanding UPB Outstanding UPB Outstanding $1,093 30% (11) Primary mortgage insurance & other $509B 18% $566B 20% $601B 21% $1,000 $927 22% (12) Connecticut Avenue Securities® (CAS) $503B 18% $681B 24% $768B 27% 20% $628 15% (13) U P $500 Credit Insurance Risk Transfer™ (CIRT™) $101B 4% $181B 6% $231B 8% B $429 ( 9% $ 10% ) (12) B $250 i Lender risk-sharing $23B 1% $65B 2% $94B 3% l l i o n % s $0 0% S (Less: loans covered by multiple credit i n ($211B) (8%) ($335B) (12%) ($379B) (14%) g enhancements) 2014 2015 2016 2017 YTD 2018 l e ___________________________________________________________________________________________ - F a % Single-family conventional guaranty book in a CRT transaction m Total UPB of single-family loans with credit $925B 33% $1,158B 40% $1,315B 45% (13) i l enhancement UPB outstanding of loans in a CRT transaction y ___________________________________________________________________________________________ C o n v e n Single-Familt y Credit Risk Transfer Issuance i o n a l G $410 u $400 a r $44 a n t y $331 B o o $300 k $259 $233 $239 $265 $35 $200 $240 U P $156 B $189 ( $222 $ ) $100 B i l l i o $32 $102 n $76 $68 s $0 $27 $40 2013 2014 2015 2016 2017 YTD 2018 Lender risk-sharing Connecticut Avenue Securities Credit Insurance Risk Transfer © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 12
Single-Family Problem Loan Statistics (10) Single-Family Serious Delinquency Rate by State as of September 30, 2018 WA ND WA ND MT MT MN MN ME ME SD WI SD WI OR ID NH AK AK OR ID NH WY MI NY WY MI NY Top 10 States by UPB IA MA IA MA NE NE (14) PA PA Serious Average OH NJ OH NJ IL IN IL IN Delinquency Months to NV UT MD NV UT MD CO CO State Rate Foreclosure KS MO WV DE KS MO WV DE KY VA KY VA CA 0.34% 21 CA CA TX 0.69% 24 OK TN NC OK TN NC FL 1.51% 47 AZ NM AR AZ NM AR SC SC NY 1.55% 67 MS AL GA MS AL GA WA 0.40% 38 IL 1.00% 24 TX TX LA LA NJ 1.51% 57 HI HI VA 0.53% 14 PR FL PR FL CO 0.21% 17 PA 1.11% 25 VI PR VI Less than 0.50% 0.50% to 0.99% 1.00% to 1.99% 3.00% and Above Single-Family Loan Workouts REO Ending Inventory $40 200 100K 164.6K 87K 80K $30 $28.3 150 122.3K $6.6 60K 57K $20.7 103.5K 100.6K 98.6K $20 100 $4.2 $17.5 $16.7 $15.8 $3.1 $2.1 40K 38K U 26K P $21.7 B $10 50 R 21K $16.6 E ( $14.9 20K $ $14.4 $14.6 O ) E B n i l d l $0 0 N i 0K i o n u n g m s 2014 2015 2016 2017 YTD 2018 2014 2015 2016 2017 YTD 2018 I b n e v r e (15) o REO Ending Inventory Foreclosure Alternatives Total Loan Workouts n f t o L r (16) o Home Retention Solutions y a n W o r k o u t s © 2018 Fannie Mae. Trademarks of Fannie Mae. ( Q3 2018 Financial Supplement 13 T h o u s a n d s )
Credit Loss Concentration of Single-Family Conventional Guaranty Book of Business (18) (17) % of Single-Family Credit Losses % of Single-Family Conventional Guaranty Book of Business For the Period Ended Certain Product Features Categories are not mutually exclusive 2014 2015 2016 2017 YTD 2018 2014 2015 2016 2017 YTD 2018 Alt-A(9) 4.2% 3.7% 3.1% 2.5% 2.1% 17.4% 29.3% 24.9% 21.9% 23.0% Interest Only 2.5% 2.1% 1.7% 1.2% 0.9% 10.2% 18.0% 12.2% 15.7% 14.5% Origination LTV Ratio > 90% 15.9% 16.3% 16.4% 16.7% 17.5% 15.3% 16.4% 21.9% 23.9% 21.5% (3) FICO Credit Score < 660 and Origination LTV Ratio > 90% 2.0% 2.0% 1.8% 1.7% 1.6% 6.6% 6.5% 8.8% 9.0% 8.6% (3) FICO Credit Score < 660 8.0% 7.8% 7.3% 7.0% 6.7% 29.7% 29.7% 35.8% 33.0% 33.6% Refi Plus including HARP 19.1% 17.6% 15.4% 13.2% 11.8% 10.4% 7.8% 14.0% 15.9% 13.7% Vintage 2014 2015 2016 2017 YTD 2018 2014 2015 2016 2017 YTD 2018 2009 - YTD 2018 80.5% 84.1% 87.4% 90.3% 92.0% 13.3% 10.3% 19.0% 23.1% 21.0% 2005 – 2008 12.2% 10.1% 8.1% 6.2% 5.1% 74.7% 77.6% 64.7% 64.8% 65.2% 2004 & Prior 7.3% 5.8% 4.5% 3.5% 2.9% 12.0% 12.1% 16.4% 12.2% 13.8% % of Single-Family Conventional Guaranty Book of Business % of Q3 2018 Single-Family Credit Losses by State by State as of September 30, 2018 5.0% 8.9% 3.6% 3.6% 10.2% 5.7% 100% 10.0% 100% 48.6% $2.9T $2.0B 19.4% 62.7% 12.6% 9.7% All Other States Florida New Jersey All Other States Florida New Jersey California Illinois New York California Illinois New York © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 14
Single-Family Cumulative Default Rates (19) Cumulative Default Rates of Single-Family Conventional Guaranty Book of Business by Origination Year 2007 2006 14.0% 12.0% 10.0% 2005 8.0% C u m 6.0% 2008 u l a t i v e D 2004 e f a 4.0% u l t R a t e 2003 2.0% 2009 2010 2014 2012 2011 2015 2013 2002 2018 2017 2016 0.0% Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y r r r Y r r Y r r Y r r r r r r r r r r r r r r r r r r r r r r r r r r r r r 1 r 7 5 1 3 1 2 1 4 6 9 r r r 8 7 7 r 7 5 5 5 3 2 3 3 4 6 9 2 2 4 6 9 4 6 9 8 8 8 r r r - 1 - 1 - 1 1 - - 1 - - - - - - - - - 1 1 - 1 - - - - - Q - - - - - - - - - - - - - 1 - - - Q Q Q Q 1 1 1 Q 0 Q Q Q Q Q Q Q Q Q Q Q Q 0 Q 0 Q 0 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q - - - - 1 - Q 3 2 4 1 1 - Q - 1 - Q Q 1 3 1 1 1 2 4 3 2 4 1 3 2 4 3 2 3 4 3 3 2 2 2 4 4 4 3 2 4 Q Q Q Q 1 3 2 Time Since Beginning of Origination Year 4 1 3 2 4 2002 2004 2006 2008 2010* 2012* 2014* 2016* 2018* 2003 2005 2007 2009* 2011* 2013* 2015* 2017* * As of September 30, 2018, cumulative default rates on the loans originated from 2009-2018 was less than 1% © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 15
Multifamily Business © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 16
Multifamily Highlights (1) Q3 2018 Acquisitions Guaranty Book of Business $400 100% $20.3 $20.0 96% 96% 97% 97% 97% $18.2 $296.1 80% $699M $16.2 $300 $277.3 $281.3 $287.6 $265.4 Net interest income $15.0 $14.5 60% $11.3 $200 $10.0 40% U U L P P e B B $100 n d ( ( $5.0 $192M e $ $ 20% r ) ) R B B i i Fee and other s i S l l k l l h i i S o o $0 0% a $0.0 h n r income n e a s s r o Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 i f n M g u Other rental business volume Multifamily new business volume Share of guaranty book with lender risk-sharing l t i f a UPB outstanding of Multifamily guaranty book of business m i l y G u a Multifamily Guaranty Fee and r $31M a Key Highlights n (2) t y Credit Loss (Benefit) Ratio Fair value losses B o o 100 k w i t § Multifamily net income was $549 million in Q3 2018, compareh d 79.8 78.7 78.9 78.6 80 77.0 with $504 million in Q2 2018. The increase in net income was driven primarily by an increase in guaranty fee revenue as the multifamily guaranty book grew during the quarter. $25M 60 Credit-related § Fannie Mae continued to share credit risk with lenders on nearly expense 100% of the company’s new business through its Delegated 40 ® B Underwriting and Servicing (DUS ) program. To complement a s i this program, in August the company completed its third s P o 20 multifamily CIRT™ transaction, which covered loans with a i n t s UPB of $11.1 billion. (0.8) 0.6 0.6 0.7 $549M 0 (2.4) § The multifamily guaranty book of business continued to grow in Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q3 2018, while the average charged guaranty fee on the Net income multifamily guaranty book decreased slightly from June 30, Annualized credit loss (benefit) ratio 2018 to 77 basis points as of September 30, 2018. Average guaranty fee at end of period (bps) © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 17
Certain Credit Characteristics of Multifamily Acquisitions Certain Credit Chacteristics of Multifamily Loans by Acquisition Period Categories are not mutually exclusive 2014 2015 2016 2017 YTD 2018 Total Unpaid Principal Balance (UPB) ($B) $28.9 $42.4 $55.3 $67.1 $44.0 Weighted Average Origination LTV Ratio 68% 68% 68% 67% 65% Loan Count 2,361 2,869 3,335 3,861 2,710 (3) % Lender Recourse 99% 99% 99% 100% 100% (4) % DUS™ 99% 99% 99% 98% 99% Top 10 MSAs by YTD 2018 Origination Loan-to-Value Ratio Acquisitions by Note Type Acquisition UPB 100% 100% $1.5B $2.0B 11% 21% 20% $1.0B 28% 23% 80% 80% 48% 48% 50% 57% $1.4B $2.4B 65% 60% 60% $1.0B Share of Acquistions: 40.6% Total UPB: $17.9B 89% 40% 40% 79% 80% $1.4B 72% 77% S S h h a a r 51% 51% 49% $1.7B r e e 43% o 20% o 20% f 35% f A A c c q q u $3.0B u i i s s i 0% i 0% t $2.5B t i i o o n 2014 2015 2016 2017 YTD 2018 n 2014 2015 2016 2017 YTD 2018 s s % Origination LTV less than or equal to 70% Atlanta Phoenix Variable Rate % Origination LTV greater than 70% and less than or equal to 80% Dallas San Diego Fixed Rate % Origination LTV greater than 80% Houston San Francisco Los Angeles Seattle New York Washington, DC © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 18
Certain Credit Characteristics of Multifamily Guaranty Book of Business Certain Credit Characteristics of Multifamily Book of Business by Acquisition Year, Asset Class, or Targeted Affordable Segment Acquisition Year Asset Class or Targeted Affordable Segment (1) As of September 30, 2018 Overall 2004 & Conventional Privately Owned Categories are not mutually exclusive Book Eariler 2005 - 2008 2009 - 2015 2016 2017 2018 / Co-op(5) Senior(5) Student(5) Manufactured(5) with Subsidy(6) Total Unpaid Principal Balance (UPB) ($B) $296.1 $5.9 $9.3 $120.7 $51.0 $65.6 $43.6 $259.3 $15.6 $10.7 $10.5 $34.5 Average Unpaid Principal Balance ($M) $10.7 $4.6 $2.3 $9.5 $16.7 $17.4 $16.1 $10.2 $22.2 $18.3 $10.7 $9.1 Weighted Average Origination LTV Ratio 67% 71% 65% 66% 68% 67% 65% 67% 67% 67% 67% 69% % Fixed-rate 84% 19% 49% 91% 81% 81% 89% 85% 62% 81% 87% 69% Loan Count 27,654 1,261 4,111 12,739 3,062 3,773 2,708 25,387 701 582 984 3,788 % of Book 100% 2% 3% 41% 17% 22% 15% 88% 5% 4% 4% 12% % of Small Balance Loans(7) 40% 68% 87% 39% 18% 18% 18% 42% 2% 14% 27% 41% (3) % Lender Recourse 97% 95% 75% 96% 99% 100% 100% 97% 100% 99% 100% 96% % DUS(4) 98% 97% 86% 98% 99% 97% 99% 97% 98% 100% 100% 95% (8) Serious Delinquency Rate 0.07% 0.01% 0.46% 0.09% 0.02% 0.04% 0.00% 0.07% 0.04% 0.00% 0.00% 0.12% Multifamily Book of Business UPB by Maturity Year Top 10 MSAs by UPB by Note Type 100% $0.8B$9.2B $8.7B $10.4B $12.2B 19% 20% 20% 18% 16% $14.5B $6.8B $8.9B $21.0B 80% $14.0B $8.6B 60% Share of Book Share of Book of Business: 100% of Business: 41.3% Total UPB: $296.1B Total UPB: $122.3B 81% 80% 80% 82% 84% $7.3B $9.4B 40% 20% S h $25.4B $21.0B a $240.2B r e o 0% f M 2014 2015 2016 2017 YTD 2018 u l t i f 2018 2021 Atlanta New York a Variable Rate m i 2019 2022 Chicago Phoenix l Fixed Rate y B 2020 Other Dallas San Francisco o o k Houston Seattle o f Los Angeles Washington, DC B u s i n e s s © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 19
Multifamily Serious Delinquency Rates and Credit Losses (4) (9) DUS/Non-DUS Cumulative Credit Loss Rates by Acquisition Year Through YTD 2018 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD 2018 2.0% 1.5% 1.4% 1.2% 1.1% 1.0% 0.9% 0.9% 0.9% 0.8% 0.7% C r e d 0.5% i 0.5% 0.4% t 0.4% L 0.3% o 0.3% s 0.2% 0.3% s 0.2% R 0.1% 0.1% 0.1% a 0.1% t 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% e 0.0% DUS Credit Loss Rate Total Credit Loss Rate Non-DUS Credit Loss Rate Serious Delinquency Rates(4) (8) Credit Loss (Benefit) Ratio(2) (10) 1.40% 1.36% 6.0 1.20% 1.20% 4.0 2.5 1.00% 0.92% 2.0 0.80% 0.7 0.71% 0.63% 0.0 0.59% 0.60% 0.55% B (0.2) (0.7) a s 0.44% 0.56% i s -2.0 0.50% P S 0.40% 0.34% o e (2.3) i n r (2.7) i 0.39% t o s u 0.24% s 0.21% 0.21% -4.0 D 0.20% 0.15% 0.15% e 0.24% l 0.11% i 0.10% n 0.18% 0.07% 0.05% 0.07% q 0.05% u e 0.00% 0.08% 0.07% 0.08% 0.06% -6.0 n c y 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD 2018 2013 2014 2015 2016 2017 YTD 2018 R a t e DUS Serious Delinquency Rate Non-DUS Serious Delinquency Rate Multifamily Total Serious Delinquency Rate © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 20
Endnotes © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 21
Financial Overview Endnotes (1) Guaranty fee income includes the impact of a 10 basis point guaranty fee increase implemented in 2012 pursuant to the Temporary Payroll Tax Cut Continuation Act of a 2011, the incremental revenue from which is remitted to Treasury and not retained by the company. (2) Home price estimates are based on purchase transactions in Fannie-Freddie acquisition and public deed data available through the end of September 2018. Including a subsequent data may lead to materially different results. Home price change is not seasonally adjusted. UPB estimates are based on data available through the end of September 2018, and the top 10 states are reported by UPB in descending order. (3) Source: Bureau of Economic Analysis. GDP growth rate is calculated using the quarterly annualized growth rate for the most recent period and the annual growth rate a for prior periods. (4) Under the terms of the senior preferred stock purchase agreement, dividend payments we make to Treasury do not offset our prior draws of funds from Treasury, and a we are not permitted to pay down draws we have made under the agreement except in limited circumstances. (5) Treasury draws are shown in the period for which requested, not when the funds were received by us. Draw requests have been funded in the quarter following a net worth deficit. © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 22
Single-Family Business Endnotes (1) Single-family conventional loan population consists of: (a) single-family conventional mortgage loans of Fannie Mae; (b) single-family conventional mortgage loans underlying a Fannie Mae MBS; and (c) other credit enhancements that we provide on single-family mortgage assets, such as long-term standby commitments. It excludes non-Fannie Mae a single-family mortgage-related securities held in our retained mortgage portfolio for which we do not provide a guaranty. Conventional refers to mortgage loans and a mortgage-related securities that are not guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies. (2) Calculated based on the average guaranty fee rate for our single-family guaranty arrangements during the period plus the recognition of any upfront cash payments over an a estimated average life. Excludes the impact of a 10 basis point guaranty fee increase implemented in 2012 pursuant to the TCCA, the incremental revenue from which is remitted to a Treasury and not retained by us. (3) FICO credit score is as of loan origination, as reported by the seller of the mortgage loan. (4) Population excludes HARP and other Refi Plus loans acquired under our Refi Plus™ initiative. (5) Calculated based on the aggregate unpaid principal balance of single-family loans for each category divided by the aggregate unpaid principal balance of loans in our single-family a conventional guaranty book of business. Loans with multiple product features are included in all applicable categories. (6) For a description of our Alt-A loan classification criteria, refer to Fannie Mae’s 2017 Form 10-K. We discontinued the purchase of newly originated Alt-A loans in 2009, except for a those that represent the refinancing of a loan we acquired prior to 2009, which has resulted in our acquisitions of Alt-A mortgage loans remaining low and the percentage of the a book of business attributable to Alt-A to continue to decrease over time. (7) “Serious delinquency rate" refers to single-family conventional loans that are 90 days or more past due or in the foreclosure process in the applicable origination year, product a feature, or state, divided by the number of loans in our single-family conventional guaranty book of business in that origination year, product feature, or state. (8) The average estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan divided by the estimated current value of the property, which we calculate a using an internal valuation model that estimates periodic changes in home value. Excludes loans for which this information is not readily available. (9) Percentage of loans in our single-family conventional guaranty book of business, measured by unpaid principal balance, included in an agreement used to reduce credit risk by a requiring collateral, letters of credit, mortgage insurance, corporate guarantees, inclusion in a credit risk transfer transaction reference pool, or other agreement that provides for a our compensation to some degree in the event of a financial loss relating to the loan. Because we include loans in reference pools for our Connecticut Avenue Securities and Credit a Insurance Risk Transfer credit risk transfer transactions on a lagged basis (typically about six months to one year after we initially acquire the loans), we expect the percentage of a our 2017 and 2018 single-family loan acquisitions with credit enhancement will increase in the future. (10) The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each period divided by the estimated value of the property a as of the end of the period. (11) Refers to loans included in an agreement used to reduce credit risk by requiring primary mortgage insurance, collateral, letters of credit, corporate guarantees, or other agreements a to provide an entity with some assurance that it will be compensated to some degree in the event of a financial loss. Excludes loans covered by credit risk transfer transactions a unless such loans are also covered by primary mortgage insurance. (12) Outstanding unpaid principal balance represents the underlying loan balance, which is different from the reference pool balance for CAS and some lender risk-sharing a transactions. (13) Includes mortgage pool insurance transactions covering loans with an unpaid principal balance of approximately $3 billion at issuance and approximately $5 billion outstanding a as of September 30, 2018. (14) Measured from the borrowers’ last paid installment on their mortgages to when the related properties were added to our REO inventory for foreclosures completed during the first a nine months of 2018. Home Equity Conversion Mortgages insured by the Department of Housing and Urban Development are excluded from this calculation. (15) Consists of (a) short sales, in which the borrower, working with the servicer and Fannie Mae, sells the home prior to foreclosure for less than the amount owed to pay off the loan, a accrued interest and other expenses from the sale proceeds and (b) deeds-in-lieu of foreclosure, which involve the borrower’s voluntarily signing over title to the property. (16) Consists of (a) modifications, which do not include trial modifications, loans to certain borrowers who have received bankruptcy relief that are accounted for as troubled debt a restructurings, or repayment plans or forbearances that have been initiated but not completed; (b) repayment plans, reflects only those plans associated with loans that were 60 a days or more delinquent; and (c) forbearances, not including forbearances associated with loans that were less than 90 days delinquent when entered. (17) Based on the unpaid principal balance (UPB) of the single-family conventional guaranty book of business as of period end. (18) Credit losses consist of (a) charge-offs net of recoveries and (b) foreclosed property expense (income). Percentages exclude the impact of recoveries that have not been allocated to a specific loans. (19) Defaults include loan foreclosures, short sales, sales to third parties at the time of foreclosure and deeds-in-lieu of foreclosure. Cumulative Default Rate is the total number of a single-family conventional loans in the guaranty book of business originated in the identified year that have defaulted, divided by the total number of single-family conventional loans in the guaranty book of business originated in the identified year. Data as of September 30, 2018 is not necessarily indicative of the ultimate performance of the loans and performance is likely to change, perhaps materially, in future periods. © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 23
Multifamily Business Endnotes (1) Our multifamily guaranty book of business consists of: (a) multifamily mortgage loans of Fannie Mae; (b) multifamily mortgage loans underlying Fannie Mae MBS; a and (c) other credit enhancements that we provide on multifamily mortgage assets. It excludes non-Fannie Mae multifamily mortgage-related securities held in our a retained mortgage portfolio for which we do not provide a guaranty. (2) Credit loss (benefit) ratio represents the credit loss or benefit for the period divided by the average unpaid principal balance of the multifamily guaranty book of a business for the period. Credit benefits are the result of recoveries on previously charged-off amounts. (3) Represents the percentage of loans with lender risk-sharing agreements in place, measured by unpaid principal balance. (4) Under the Delegated Underwriting and Servicing (DUS) program, Fannie Mae acquires individual, newly originated mortgages from specially approved DUS lenders a using DUS underwriting standards and/or DUS loan documents. Because DUS lenders generally share the risk of loss with Fannie Mae, they are able to originate, a underwrite, close and service most loans without our pre-review. (5) See https://www.fanniemae.com/multifamily/products for definitions. Loans with multiple product features are included in all applicable categories. (6) The Multifamily Affordable Business Channel focuses on financing properties that are under an agreement that provides long-term affordability, such as properties a with rent subsidies or income restrictions. (7) Multifamily loans with an original unpaid balance of up to $3 million nationwide or up to $5 million in high cost markets. (8) Multifamily loans are classified as seriously delinquent when payment is 60 days or more past due. (9) Cumulative credit loss rate is the cumulative credit losses (gains) through September 30, 2018 on the multifamily loans that were acquired in the applicable period, as a a percentage of the total acquired unpaid principal balance of multifamily loans in the applicable period. (10) Credit loss (benefit) ratio is annualized for the most recent period. © 2018 Fannie Mae. Trademarks of Fannie Mae. Q3 2018 Financial Supplement 24