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FannieMae Q1.03.31.2015 10Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the quarterly period ended March 31, 2015


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

For the transition period from to

Commission File No.: 0-50231

Federal National Mortgage Association

(Exact name of registrant as specified in its charter)

Fannie Mae



Federally chartered corporation	52-0883107
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3900 Wisconsin Avenue, NW Washington, DC	20016 (Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code:

(202) 752-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of March 31, 2015, there were 1,158,082,750 shares of common stock of the registrant outstanding.

TABLE OF CONTENTS



		Page
PART I—Financial Information		1
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	69
	Condensed Consolidated Statements of Operations and Comprehensive Income	70
	Condensed Consolidated Statements of Cash Flows	71
	Note 1—Summary of Significant Accounting Policies	72
	Note 2—Consolidations and Transfers of Financial Assets	76
	Note 3—Mortgage Loans	78
	Note 4—Allowance for Loan Losses	84
	Note 5—Investments in Securities	87
	Note 6—Financial Guarantees	92
	Note 7—Acquired Property, Net	93
	Note 8—Short-Term Borrowings and Long-Term Debt	94
	Note 9—Derivative Instruments	95
	Note 10—Earnings (Loss) Per Share	98
	Note 11—Segment Reporting	98
	Note 12—Equity	101
	Note 13—Concentrations of Credit Risk	102
	Note 14—Netting Arrangements	106
	Note 15—Fair Value	108
	Note 16—Commitments and Contingencies	132
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
	Introduction	1
	Executive Summary	2
	Legislative and Regulatory Developments	15
	Critical Accounting Policies and Estimates	16
	Consolidated Results of Operations	17
	Business Segment Results	25
	Consolidated Balance Sheet Analysis	32
	Liquidity and Capital Management	35
	Off-Balance Sheet Arrangements	39
	Risk Management	40
	Impact of Future Adoption of New Accounting Pronouncements	65
	Forward-Looking Statements	65
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	135
Item 4.	Controls and Procedures	135
PART II—Other Information		137
Item 1.	Legal Proceedings	137
Item 1A.	Risk Factors	138
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	139
Item 3.	Defaults Upon Senior Securities	140
Item 4.	Mine Safety Disclosures	140
Item 5.	Other Information	140
Item 6.	Exhibits	140

MD&A TABLE REFERENCE



Table	Description	Page
1	Credit Statistics, Single-Family Guaranty Book of Business	5
2	Single-Family Acquisitions Statistics	7
3	Summary of Condensed Consolidated Results of Operations	17
4	Analysis of Net Interest Income and Yield	18
5	Rate/Volume Analysis of Changes in Net Interest Income	19
6	Fair Value Losses, Net	20
7	Total Loss Reserves	21
8	Changes in Combined Loss Reserves	21
9	Troubled Debt Restructurings and Nonaccrual Loans	23
10	Credit Loss Performance Metrics	24
11	Single-Family Business Results	25
12	Multifamily Business Results	27
13	Capital Markets Group Results	29
14	Capital Markets Group’s Mortgage Portfolio Activity	30
15	Capital Markets Group’s Mortgage Portfolio Composition	31
16	Capital Markets Group’s Mortgage Portfolio	32
17	Summary of Condensed Consolidated Balance Sheets	33
18	Summary of Mortgage-Related Securities at Fair Value	34
19	Activity in Debt of Fannie Mae	36
20	Outstanding Short-Term Borrowings and Long-Term Debt	37
21	Cash and Other Investments Portfolio	38
22	Composition of Mortgage Credit Book of Business	41
23	Selected Credit Characteristics of Single-Family Conventional Guaranty Book of Business, by Acquisition Period	42
24	Representation and Warranty Status of Single-Family Conventional Loans Acquired in 2013-2015	44
25	Credit Risk Transferred Pursuant to CAS Issuances	45
26	Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business	46
27	Delinquency Status and Activity of Single-Family Conventional Loans	51
28	Single-Family Conventional Seriously Delinquent Loan Concentration Analysis	52
29	Statistics on Single-Family Loan Workouts	53
30	Single-Family Foreclosed Properties	54
31	Single-Family Foreclosed Property Status	55
32	Multifamily Lender Risk-Sharing	56
33	Multifamily Guaranty Book of Business Key Risk Characteristics	56
34	Multifamily Foreclosed Properties	57
35	Mortgage Insurance Coverage	59
36	Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level and Slope of Yield Curve	64
37	Derivative Impact on Interest Rate Risk (50 Basis Points)	65

PART I—FINANCIAL INFORMATION

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

We have been under conservatorship, with the Federal Housing Finance Agency (“FHFA”) acting as conservator, since September 6, 2008. As conservator, FHFA succeeded to all rights, titles, powers and privileges of the company, and of any shareholder, officer or director of the company with respect to the company and its assets. The conservator has since delegated specified authorities to our Board of Directors and has delegated to management the authority to conduct our day-to-day operations. Our directors do not have any fiduciary duties to any person or entity except to the conservator and, accordingly, are not obligated to consider the interests of the company, the holders of our equity or debt securities or the holders of Fannie Mae MBS unless specifically directed to do so by the conservator. We describe the rights and powers of the conservator, key provisions of our agreements with the U.S. Department of the Treasury (“Treasury”), and their impact on shareholders in our Annual Report on Form 10-K for the year ended December 31, 2014 (“2014 Form 10-K”) in “Business—Conservatorship and Treasury Agreements.”

You should read this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in conjunction with our unaudited condensed consolidated financial statements and related notes and the more detailed information in our 2014 Form 10-K.

This report contains forward-looking statements that are based on management’s current expectations and are subject to significant uncertainties and changes in circumstances. Please review “Forward-Looking Statements” for more information on the forward-looking statements in this report. Our actual results may differ materially from those reflected in our forward-looking statements due to a variety of factors including, but not limited to, those discussed in “Risk Factors” and elsewhere in this report and in our 2014 Form 10-K.

You can find a “Glossary of Terms Used in This Report” in the “MD&A” of our 2014 Form 10-K.



INTRODUCTION

Fannie Mae is a government-sponsored enterprise (“GSE”) that was chartered by Congress in 1938. We serve an essential role in the functioning of the U.S. housing market and are investing in improvements to the U.S. housing finance system. Our public mission is to support liquidity and stability in the secondary mortgage market, where existing mortgage-related assets are purchased and sold, and to increase the supply of affordable housing. Our charter does not permit us to originate loans or lend money directly to consumers in the primary mortgage market.

Fannie Mae provides reliable, large-scale access to affordable mortgage credit and indirectly enables families to buy, refinance or rent homes. We securitize mortgage loans originated by lenders into Fannie Mae mortgage-backed securities that we guarantee, which we refer to as Fannie Mae MBS. One of our key functions is to evaluate, price and manage the credit risk on the loans and securities that we guarantee. We also purchase mortgage loans and mortgage-related securities, primarily for securitization and sale at a later date. We use the term “acquire” in this report to refer to both our securitizations and our purchases of mortgage-related assets. We obtain funds to support our business activities by issuing a variety of debt securities in the domestic and international capital markets, which attracts global capital to the United States housing market.

Our conservatorship has no specified termination date, and we do not know when or how the conservatorship will terminate, whether we will continue to exist following conservatorship, what changes to our business structure will be made during or following the conservatorship, or what ownership interest, if any, our current common and preferred stockholders will hold in us after the conservatorship is terminated. In addition, our agreements with Treasury that provide for financial support include covenants that significantly restrict our business activities and provide for dividends to accrue at a rate equal to our net worth less a capital reserve amount, which continues to decrease annually until it reaches zero, allowing us to retain only a limited and decreasing amount of our net worth. We provide additional information on the conservatorship, the provisions of our agreements with Treasury, and their impact on our business in our 2014 Form 10-K in “Business—Conservatorship and Treasury Agreements” and “Risk Factors.” We discuss the uncertainty of our future in “Executive Summary—Outlook” and “Risk Factors” in this report. We discuss proposals for housing finance reform that could materially affect our business in “Business—Housing Finance Reform” in our 2014 Form 10-K.

Although Treasury owns our senior preferred stock and a warrant to purchase 79.9% of our common stock, and has made a commitment under a senior preferred stock purchase agreement to provide us with funds to maintain a positive net worth under specified conditions, the U.S. government does not guarantee our securities or other obligations.

Our common stock is traded in the over-the-counter market and quoted on the OTC Bulletin Board under the symbol “FNMA.” Our debt securities are actively traded in the over-the-counter market.



EXECUTIVE SUMMARY

Our Strategy

We are focused on:


•	achieving strong financial and credit performance;


•	supporting the housing recovery by providing reliable, large-scale access to affordable mortgage credit for qualified borrowers and helping struggling homeowners;


•	serving customer needs and improving our business efficiency; and


•	helping to build a sustainable housing finance system.

Achieving strong financial and credit performance

We continued to achieve strong financial and credit performance in the first quarter of 2015:

•

Financial Performance. We reported net income of $1.9 billion for the first quarter of 2015, compared with net income of $5.3 billion for the first quarter of 2014. See “Summary of Our Financial Performance” below for an overview of our financial performance for the first quarter of 2015, compared with the first quarter of 2014. We expect to remain profitable on an annual basis for the foreseeable future; however, certain factors, such as changes in interest rates or home prices, could result in significant volatility in our financial results from quarter to quarter or year to year. For more information regarding our expectations for our future financial performance, see “Outlook—Financial Results” and “Outlook—Revenues” below.

•

Dividend Payments to Treasury. With our expected June 2015 dividend payment to Treasury, we will have paid a total of $138.2 billion in dividends to Treasury on our senior preferred stock. The aggregate amount of draws we have received from Treasury to date under the senior preferred stock purchase agreement is $116.1 billion. Under the terms of the senior preferred stock purchase agreement, dividend payments do not offset prior Treasury draws. See “Treasury Draws and Dividend Payments” and “Outlook—Dividend Obligations to Treasury” below for more information regarding our dividend payments to Treasury.

•

Book of Business and Credit Performance. Beginning in 2008, we made changes to strengthen our underwriting and eligibility standards that have improved the credit quality of our single-family guaranty book of business and contributed to improvement in our credit performance. Our single-family serious delinquency rate has decreased each quarter since the first quarter of 2010, and was 1.78% as of March 31, 2015, compared with 1.89% as of December 31, 2014. Single-family seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process. See “Single-Family Guaranty Book of Business” below for information on the credit performance of the mortgage loans in our single-family guaranty book of business and on our single-family acquisitions.

Our business model has changed significantly since we entered into conservatorship in 2008 and continues to evolve. To meet the requirements of our senior preferred stock purchase agreement with Treasury, our retained mortgage portfolio has declined substantially since entering conservatorship and will continue to decline until 2018, which has resulted in, and is expected to continue to result in, declines in our net revenues from our retained mortgage portfolio. In addition, the amount of guaranty fee income we receive for managing the credit risk of loans in our book of business has increased significantly since entering into conservatorship and we expect will continue to increase over the next several years. See “Outlook—Revenues” for more information on the shift in, and future expectations regarding, the sources of our revenue. Our business also continues to evolve as a result of our efforts to build a safer and sustainable housing finance system and to pursue the strategic goals identified by our conservator. For example, we have begun to transfer a portion of the existing credit risk on our single-family guaranty book of business in order to reduce the risk to taxpayers of future borrower defaults, and we expect to continue engaging in economically sensible ways to expand our offerings of credit risk transfer transactions in the future. See “Helping to Build a Sustainable Housing Finance System” below and in our 2014 Form 10-K in “Business—Executive Summary” for a discussion of our credit risk transfer transactions and other efforts to build a safer and sustainable housing finance system.

We remain under conservatorship and subject to the restrictions of the senior preferred stock purchase agreement with Treasury. As a result of the senior preferred stock purchase agreement and directives from our conservator, we are not permitted to retain our net worth (other than a limited amount that will decrease to zero by 2018), rebuild our capital position or pay dividends or other distributions to stockholders other than Treasury. See “Business—Conservatorship and Treasury Agreements” in our 2014 Form 10-K for more information regarding our conservatorship and our senior preferred stock purchase agreement with Treasury. In addition, the future of our company remains uncertain. Congress continues to consider options for reform of the housing finance system, including the GSEs, and we cannot predict the prospects for the enactment, timing or final content of housing finance reform legislation. See “Business—Housing Finance Reform” in our 2014 Form 10-K for information on recent proposals for housing finance reform.

Supporting the housing recovery by providing reliable, large-scale access to affordable mortgage credit for qualified borrowers and helping struggling homeowners

We continued our efforts to support the housing recovery in the first quarter of 2015. We remained the largest single issuer of mortgage-related securities in the single-family secondary market during the first quarter of 2015 and a continuous source of liquidity in the multifamily market. We also continued to help struggling homeowners. In the first quarter of 2015, we provided approximately 34,000 loan workouts to help homeowners stay in their homes or otherwise avoid foreclosure. We discuss our activities to support the housing and mortgage markets in “Contributions to the Housing and Mortgage Markets” below.

Serving customer needs and improving our business efficiency

We continued to work on initiatives to better serve our customers’ needs and improve our business efficiency in the first quarter of 2015. These initiatives include revising and clarifying our representation and warranty framework to reduce lenders’ repurchase risk, simplifying our business processes, and updating our infrastructure. We discuss these initiatives in “Serving Customer Needs and Improving Our Business Efficiency” below and in our 2014 Form 10-K in “Business—Executive Summary.”

Helping to build a sustainable housing finance system

We continued to help lay the foundation for a safer and sustainable housing finance system in the first quarter of 2015. Our efforts included pursuing the strategic goals and objectives identified by our conservator, as well as investing in enhancements to our business and infrastructure. We discuss these efforts, as well as FHFA’s 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac and FHFA’s related 2015 conservatorship scorecard, in “Helping to Build a Sustainable Housing Finance System” below and in our 2014 Form 10-K in “Business—Executive Summary.”

Summary of Our Financial Performance

Comprehensive Income

We recognized comprehensive income of $1.8 billion in the first quarter of 2015, consisting of net income of $1.9 billion and other comprehensive loss of $92 million. In comparison, we recognized comprehensive income of $5.7 billion in the first quarter of 2014, consisting of net income of $5.3 billion and other comprehensive income of $372 million. The decrease in comprehensive income was primarily driven by revenue of $4.1 billion recognized in the first quarter of 2014 resulting from settlement agreements resolving certain lawsuits relating to private-label mortgage-related securities (“PLS”) sold to us. The decrease in comprehensive income was also attributable to a decline in credit-related income and an increase in fair value losses.

Credit-related income decreased to $60 million in the first quarter of 2015 from $1.0 billion in the first quarter of 2014. This decrease was primarily due to less income in the first quarter of 2015 from resolution agreements relating to representation and warranty matters compared with the first quarter of 2014.

Fair value losses increased to $1.9 billion in the first quarter of 2015 from $1.2 billion in the first quarter of 2014. This increase was primarily driven by risk management derivative fair value losses as a result of larger declines in longer-term swap rates during the first quarter of 2015, which caused larger decreases in the fair value of our pay-fixed derivatives.

We expect volatility from period to period in our financial results from a number of factors, particularly changes in market conditions that result in fluctuations in the estimated fair value of the financial instruments that we mark to market through our earnings. These instruments include derivatives and certain securities. The estimated fair value of our derivatives and securities may fluctuate substantially from period to period because of changes in interest rates, the yield curve, mortgage spreads and implied volatility, as well as activity related to these financial instruments. We use derivatives to manage the interest rate risk exposure of our net portfolio, which consists of our retained mortgage portfolio, cash and other investments

portfolio, and outstanding debt of Fannie Mae. Some of these financial instruments in our net portfolio are not recorded at fair value in our condensed consolidated financial statements, and as a result we may experience accounting gains or losses due to changes in interest rates or other market conditions that may not be indicative of the economic interest rate risk exposure of our net portfolio. See “Risk Management—Market Risk Management, Including Interest Rate Risk Management” for more information. In addition, our credit-related income or expense can vary substantially from period to period primarily due to changes in home prices, borrower payment behavior and economic conditions.

See “Consolidated Results of Operations” for more information on our results.

Net Worth

Our net worth decreased to $3.6 billion as of March 31, 2015 from $3.7 billion as of December 31, 2014 primarily due to our payment to Treasury of $1.9 billion in senior preferred stock dividends, offset by our comprehensive income of $1.8 billion during the first quarter of 2015. Our expected dividend payment of $1.8 billion for the second quarter of 2015 is calculated based on our net worth of $3.6 billion as of March 31, 2015 less the applicable capital reserve amount of $1.8 billion.

Single-Family Guaranty Book of Business

Credit Performance

We continued to achieve strong credit performance in the first quarter of 2015. In addition to acquiring loans with strong credit profiles, as we discuss below in “Recently Acquired Single-Family Loans,” we continued to execute on our strategies for reducing credit losses, such as helping eligible Fannie Mae borrowers with high loan-to-value (“LTV”) ratio loans refinance into more sustainable loans through the Administration’s Home Affordable Refinance Program^® (“HARP^®”), offering borrowers loan modifications that can significantly reduce their monthly payments, pursuing foreclosure alternatives and managing our real estate owned (“REO”) inventory to appropriately manage costs and maximize sales proceeds. As we work to reduce credit losses, we also seek to assist struggling homeowners, help stabilize communities and support the housing market.

Table 1 presents information for each of the last five quarters about the credit performance of mortgage loans in our single-family guaranty book of business and our workouts. The term “workouts” refers to both home retention solutions (loan modifications and other solutions that enable a borrower to stay in his or her home) and foreclosure alternatives (short sales and deeds-in-lieu of foreclosure). The workout information in Table 1 does not reflect repayment plans and forbearances that have been initiated but not completed, nor does it reflect trial modifications that have not become permanent.

Table 1: Credit Statistics, Single-Family Guaranty Book of Business⁽¹⁾



	2015				2014
	Q1				Full Year			Q4			Q3			Q2			Q1
	(Dollars in millions)
As of the end of each period:
Serious delinquency rate⁽²⁾	1.78			%	1.89		%	1.89		%	1.96		%	2.05		%	2.19		%
Seriously delinquent loan count	308,546				329,590			329,590			340,897			357,267			383,810
Foreclosed property inventory:
Number of properties⁽³⁾	79,319				87,063			87,063			92,386			96,796			102,398
Carrying value	$	8,915			$	9,745		$	9,745		$	10,209		$	10,347		$	10,492
Total loss reserves⁽⁴⁾	32,532				37,762			37,762			39,330			41,657			44,760
During the period:
Credit-related (expense) income⁽⁵⁾	$	(7	)		$	3,625		$	94		$	748		$	1,781		$	1,002
Credit losses⁽⁶⁾	5,373				5,978			1,616			1,738			1,497			1,127
REO net sales prices to unpaid principal balance⁽⁷⁾	70			%	69		%	69		%	69		%	69		%	68		%
Short sales net sales price to unpaid principal balance⁽⁸⁾	73			%	72		%	72		%	72		%	72		%	71		%
Loan workout activity (number of loans):
Home retention loan workouts⁽⁹⁾	28,568				130,132			27,610			30,584			33,639			38,299
Short sales and deeds-in-lieu of foreclosure	5,657				34,480			6,845			7,992			9,516			10,127
Total loan workouts	34,225				164,612			34,455			38,576			43,155			48,426
Loan workouts as a percentage of delinquent loans in our guaranty book of business⁽¹⁰⁾	21.71			%	23.20		%	20.45		%	22.46		%	24.69		%	25.70		%

__________

⁽¹⁾

Our single-family guaranty book of business consists of (a) single-family mortgage loans of Fannie Mae, (b) single-family mortgage loans underlying 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 mortgage-related securities held in our retained mortgage portfolio for which we do not provide a guaranty.


⁽²⁾	Calculated based on the number of single-family conventional loans that are 90 days or more past due or in the foreclosure process, divided by the number of loans in our single-family conventional guaranty book of business.


⁽³⁾	Includes acquisitions through deeds-in-lieu of foreclosure. Also includes held for use properties, which are reported in our condensed consolidated balance sheets as a component of “Other assets.”

⁽⁴⁾

Consists of (a) the combined loss reserves, (b) allowance for accrued interest receivable, and (c) allowance for preforeclosure property taxes and insurance receivable. Effective January 1, 2015, we charged off accrued interest receivable associated with loans on nonaccrual status and eliminated the related allowance in connection with our change in accounting policy related to the treatment of interest previously accrued, but not collected, at the date that loans are placed on nonaccrual status. See “Note 1, Summary of Significant Accounting Policies” for more information on this policy change.


⁽⁵⁾	Consists of (a) the benefit for credit losses and (b) foreclosed property (expense) income.

⁽⁶⁾

Consists of (a) charge-offs, net of recoveries and (b) foreclosed property expense (income), adjusted to exclude the impact of fair value losses resulting from credit-impaired loans acquired from MBS trusts. As discussed in “Outlook” and in “Consolidated Results of Operations—Credit Loss Performance Metrics,” our credit losses in the first quarter of 2015 included charge-offs of (1) $1.8 billion in loans held for investment and $724 million in preforeclosure property taxes and insurance receivable that we recognized on January 1, 2015 upon our adoption of FHFA’s Advisory Bulletin AB 2012-02, “Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention” (the “Advisory Bulletin”) and (2) $1.1 billion in accrued interest receivable that we recognized on January 1, 2015 upon our adoption of a change in accounting policy related to loans placed on nonaccrual.

⁽⁷⁾

Calculated as the amount of sale proceeds received on disposition of REO properties during the respective period, excluding those subject to repurchase requests made to our sellers or servicers, divided by the aggregate unpaid principal balance of the related loans at the time of foreclosure. Net sales price represents the contract sales price less selling costs for the property and other charges paid by the seller at closing.


⁽⁸⁾	Calculated as the amount of sale proceeds received on properties sold in short sale transactions during the respective periods divided by the aggregate unpaid principal balance of the related loans. Net sales price represents the contract sales price less the selling costs for

the property and other charges paid by the seller at the closing, including borrower relocation incentive payments and subordinate lien(s) negotiated payoffs.

⁽⁹⁾

Consists of (a) modifications, which do not include trial modifications, loans to certain borrowers who have received bankruptcy relief that are classified as troubled debt restructurings (“TDRs”), or repayment plans or forbearances that have been initiated but not completed and (b) repayment plans and forbearances completed. See “Table 29: Statistics on Single-Family Loan Workouts” in “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management—Problem Loan Management—Loan Workout Metrics” for additional information on our various types of loan workouts.


⁽¹⁰⁾	Calculated based on annualized problem loan workouts during the period as a percentage of the average balance of delinquent loans in our single-family guaranty book of business.

Beginning in 2008, we took actions to significantly strengthen our underwriting and eligibility standards and change our pricing to promote sustainable homeownership and stability in the housing market. These actions have improved the credit quality of our book of business and contributed to improvement in our credit performance. For information on the credit risk profile of our single-family guaranty book of business, see “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management,” including “Table 26: Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business.” For a discussion of revisions we made to our eligibility criteria in 2014 to address a targeted segment of creditworthy borrowers while imposing eligibility requirements that we expect will limit the effect of their loans on our overall credit risk, see “Providing Targeted Access to Credit Opportunities for Creditworthy Borrowers.”

We continue to experience disproportionately higher credit losses and serious delinquency rates from single-family loans originated in 2005 through 2008 than from loans originated in other years. Single-family loans originated in 2005 through 2008 constituted 12% of our single-family book of business as of March 31, 2015 but constituted 59% of our seriously delinquent loans as of March 31, 2015 and drove 67% of our credit losses in the first quarter of 2015. For information on the credit performance of our single-family book of business based on loan vintage, see “Table 15: Credit Loss Concentration Analysis” in our 2014 Form 10-K in “MD&A—Consolidated Results of Operations—Credit-Related Income—Credit Loss Performance Metrics” and “Table 28: Single-Family Conventional Seriously Delinquent Loan Concentration Analysis” in this report in “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management.” For information on certain credit characteristics of our single-family book of business based on the period in which we acquired the loans, see “Table 23: Selected Credit Characteristics of Single-Family Conventional Guaranty Book of Business, by Acquisition Period” in “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management.”

We provide additional information on our credit-related income in “Consolidated Results of Operations—Credit-Related Income” and on the credit performance of mortgage loans in our single-family book of business in “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management.”

We provide more information on our efforts to reduce our credit losses in “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management” and “Risk Management—Credit Risk Management—Institutional Counterparty Credit Risk Management” in both this report and our 2014 Form 10-K. See also “Risk Factors” in our 2014 Form 10-K, where we describe factors that may adversely affect the success of our efforts, including our reliance on third parties to service our loans, conditions in the foreclosure environment, and risks relating to our mortgage insurer counterparties.

Recently Acquired Single-Family Loans

Table 2 below displays information regarding our average charged guaranty fee on and select risk characteristics of the single-family loans we acquired in each of the last five quarters. Table 2 also displays the volume of our single-family Fannie Mae MBS issuances for these periods, which is indicative of the volume of single-family loans we acquired in these periods.

Table 2: Single-Family Acquisitions Statistics



	2015			2014
	Q1			Q4			Q3			Q2			Q1
	(Dollars in millions)
Single-family average charged guaranty fee on new acquisitions (in basis points)⁽¹⁾⁽²⁾	61.2			62.5			63.5			62.6			63.0
Single-family Fannie Mae MBS issuances	$	110,994		$	109,045		$	105,563		$	84,096		$	76,972
Select risk characteristics of single-family conventional acquisitions:⁽³⁾
Weighted average FICO^® credit score at origination	748			745			744			744			741
FICO credit score at origination less than 660	5		%	6		%	7		%	7		%	8		%
Weighted average original LTV ratio⁽⁴⁾	74		%	76		%	77		%	77		%	77		%
Original LTV ratio over 80%⁽⁴⁾⁽⁵⁾	26		%	30		%	32		%	32		%	31		%
Original LTV ratio over 95%⁽⁴⁾⁽⁶⁾	2		%	2		%	3		%	4		%	7		%
Loan purpose:
Purchase	37		%	50		%	57		%	54		%	45		%
Refinance	63		%	50		%	43		%	46		%	55		%

__________


⁽¹⁾	Includes the impact of a 10 basis point guaranty fee increase implemented pursuant to the Temporary Payroll Tax Cut Continuation Act of 2011 (the “TCCA”), the incremental revenue from which must be remitted to Treasury. The resulting revenue is included in guaranty fee income and the expense is recognized as “TCCA fees.”


⁽²⁾	Calculated based on the average contractual fee rate for our single-family guaranty arrangements entered into during the period plus the recognition of any upfront cash payments ratably over an estimated average life, expressed in basis points.


⁽³⁾	Calculated based on unpaid principal balance of single-family loans for each category at time of acquisition.


⁽⁴⁾	The original LTV ratio generally is based on the original unpaid principal balance of the loan divided by the appraised property value reported to us at the time of acquisition of the loan. Excludes loans for which this information is not readily available.


⁽⁵⁾	We purchase loans with original LTV ratios above 80% as part of our mission to serve the primary mortgage market and provide liquidity to the housing finance system. Except as permitted under HARP, our charter generally requires primary mortgage insurance or other credit enhancement for loans that we acquire that have an LTV ratio over 80%.


⁽⁶⁾	Approximately 58% of the greater than 95% LTV ratio loans we acquired in the first quarter of 2015 were acquired pursuant to HARP. See “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management” for information on HARP loans.

The decrease in our average charged guaranty fee on newly-acquired single-family loans in the first quarter of 2015 as compared with the first quarter of 2014 was driven primarily by a decrease in loan level price adjustments charged on our acquisitions in the first quarter of 2015, as these acquisitions included a lower proportion of loans with higher LTV ratios and a lower proportion of loans with lower FICO credit scores than our acquisitions in the first quarter of 2014. Loan level price adjustments refer to one-time cash fees that we charge at the time we acquire a loan based on the credit characteristics of the loan. See “Legislative and Regulatory Developments—Changes to Our Single-Family Guaranty Fee Pricing” for information on changes to our guaranty fee pricing.

The decrease in our acquisitions of loans with higher LTV ratios in the first quarter of 2015 as compared with the first quarter of 2014 was primarily due to an increase in the percentage of our acquisitions consisting of refinance loans, given the decrease in mortgage rates, and a corresponding decrease in the percentage of our acquisitions consisting of home purchase loans. Home purchase loans typically have higher LTV ratios than non-HARP refinance loans. In addition, an increase in refinance volume as a result of decreased mortgage rates resulted in an increase in borrowers with higher FICO credit scores in the first quarter of 2015 compared with the first quarter of 2014. The single-family loans we acquired in the first quarter of 2015 continued to have a strong credit profile, with a weighted average original LTV ratio of 74% and a weighted average FICO credit score of 748. For more information on the credit risk profile of our single-family conventional loan acquisitions in the first quarter of 2015, see “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management,” including “Table 26: Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business” in that section.

Whether the loans we acquire in the future will exhibit an overall credit profile and performance similar to our more recent acquisitions will depend on a number of factors, including our future guaranty fee pricing and any impact of that pricing on the volume and mix of loans we acquire; our future eligibility standards and those of mortgage insurers, the Federal Housing Administration (“FHA”) and the Department of Veterans Affairs (“VA”), the percentage of loan originations representing refinancings, changes in interest rates, our future objectives and activities in support of those objectives, including actions we may take to reach additional underserved creditworthy borrowers, government policy, market and competitive conditions, and the volume and characteristics of HARP loans we acquire in the future. In addition, if our lender customers retain more of the higher-quality loans they originate, it could negatively affect the credit risk profile of our new single-family acquisitions.

Providing Targeted Access to Credit Opportunities for Creditworthy Borrowers

Pursuant to FHFA’s 2014 and 2015 conservatorship scorecards and our statutory mission, we are continuing to work to increase access to mortgage credit for creditworthy borrowers, consistent with the full extent of our applicable credit requirements and risk management practices. As part of this effort, we are encouraging lenders to originate loans across the full range of credit eligibility for those borrowers meeting our credit requirements. Some actions we are taking in this regard include: providing additional clarity regarding seller and servicer representations and warranties and remedies for poor servicing performance; making new quality control tools available to lenders; conducting increased outreach to lenders and other industry stakeholders to increase awareness of our available products and programs and to identify potential opportunities to enhance our products and programs to serve this important creditworthy segment; and conducting consumer research to provide industry partners with information to support their efforts to reach underserved market segments.

As part of meeting this scorecard objective, in 2014 we worked with FHFA to revise our eligibility criteria to address a targeted segment of creditworthy borrowers—those who can afford a mortgage but who lack resources for a substantial down payment—in a responsible manner by taking into account factors that would compensate for the high LTV ratios of their loans. Specifically, we changed our eligibility requirements to increase our maximum LTV ratio from 95% to 97% for loans meeting certain criteria. Although higher LTV ratio loans typically present a higher credit risk than lower LTV ratio loans, we expect our acquisition of these loans under our revised eligibility criteria will not materially affect our overall credit risk because we expect that (1) these loans will constitute a small portion of our acquisitions overall and (2) our eligibility requirements for these loans will limit their effect on our overall credit risk. In addition, we have experience managing the credit risk associated with loans with LTV ratios in this range. In the first quarter of 2015, under our newly revised eligibility criteria, we acquired approximately 2,100 single-family loans with 95.01% to 97% LTV ratios from 370 lenders. These loans represented less than 1% of the single-family loans we acquired in the first quarter of 2015. While we expect the volume of loans we acquire under these criteria to increase, we expect they will continue to constitute only a small portion of our acquisitions overall. Our eligibility requirements for these loans include compensating factors and risk mitigants, which reduce the incidence of loans with multiple higher-risk characteristics, or “risk layering.” For purchase transactions, at least one borrower on the loan must be a first-time home buyer and occupy the property as his or her principal residence. In some cases, we also require the borrower to receive housing counseling before obtaining the loan. Eligibility for refinance transactions is limited to existing Fannie Mae loans to provide support for borrowers who may not otherwise be eligible for our Refi Plus^TM initiative. For both purchase and refinance loans, the loans must have fixed-rate terms and must be underwritten through Desktop Underwriter^®, our proprietary automated underwriting system. Desktop Underwriter provides a comprehensive credit risk assessment on loan applications submitted through the system, assessing risk layers and compensating factors, and denying loan applications that do not meet our eligibility requirements. We require mortgage insurance or other appropriate credit enhancement for all non-HARP loans with LTV ratios greater than 80%.

To the extent we are able to encourage lenders to increase access to mortgage credit, we may acquire a greater number of single-family loans with higher risk characteristics than we acquired in recent periods; however, we expect our single-family acquisitions will continue to have a strong overall credit risk profile given our current underwriting and eligibility standards and product design. We actively monitor on an ongoing basis the credit risk profile and credit performance of our single-family loan acquisitions, in conjunction with housing market and economic conditions, to determine if our pricing, eligibility and underwriting criteria accurately reflect the risk associated with loans we acquire or guarantee.

Contributions to the Housing and Mortgage Markets

Liquidity and Support Activities

As the largest provider of residential mortgage credit in the United States, we indirectly enable families to buy, refinance or rent homes. During the first quarter of 2015, we continued to provide critical liquidity and support to the U.S. mortgage market in a number of important ways:

•

We serve as a stable source of liquidity for purchases of homes and financing of multifamily rental housing, as well as for refinancing existing mortgages. We provided approximately $124 billion in liquidity to the mortgage market in the first quarter of 2015 through our purchases of loans and guarantees of loans and securities. This liquidity enabled borrowers to complete approximately 320,000 mortgage refinancings and approximately 190,000 home purchases, and provided financing for approximately 134,000 units of multifamily housing.


•	Our role in the market enables qualified borrowers to have reliable access to affordable mortgage credit, including a variety of conforming mortgage products such as the prepayable 30-year fixed-rate mortgage that protects homeowners from fluctuations in interest rates.


•	We provided approximately 34,000 loan workouts in the first quarter of 2015 to help homeowners stay in their homes or otherwise avoid foreclosure. Our loan workout efforts have helped to stabilize neighborhoods, home prices and the housing market.

•

We helped borrowers refinance loans, including through our Refi Plus initiative, which offers additional refinancing flexibility to eligible borrowers who are current on their loans, whose loans are owned or guaranteed by us and who meet certain additional criteria. We acquired approximately 54,000 Refi Plus loans in the first quarter of 2015. Refinancings delivered to us through Refi Plus in the first quarter of 2015 reduced borrowers’ monthly mortgage payments by an average of $177.


•	We support affordability in the multifamily rental market. Over 80% of the multifamily units we financed in the first quarter of 2015 were affordable to families earning at or below the median income in their area.


•	In addition to purchasing and guaranteeing loans, we provide funds to the mortgage market through short-term financing and other activities. These activities are described in our 2014 Form 10-K in “Business—Business Segments—Capital Markets.”

2015 Market Share

We remained the largest single issuer of mortgage-related securities in the secondary market during the first quarter of 2015, with an estimated market share of new single-family mortgage-related securities issuances of 40%, unchanged from the fourth quarter of 2014 and down slightly from 41% in the first quarter of 2014.

We remained a continuous source of liquidity in the multifamily market in the first quarter of 2015. We owned or guaranteed approximately 19% of the outstanding debt on multifamily properties as of December 31, 2014 (the latest date for which information is available).

Serving Customer Needs and Improving Our Business Efficiency

We are undertaking various initiatives to better serve our customers’ needs and improve our business efficiency. We are committed to providing our lender partners with the products, services and tools they need to serve the market efficiently and profitably. To further this commitment, we are focused on revising and clarifying our representation and warranty framework to reduce lenders’ repurchase risk, and making our customers’ interactions with us simpler and more efficient.

As part of these initiatives, in January 2015, we made Collateral Underwriter^TM freely available to lenders, giving them access to the same appraisal review tool we use so that they can address potential appraisal issues prior to delivering a loan to us. In April 2015, we announced that Collateral Underwriter had been integrated with Desktop Underwriter, which we believe will enhance our lenders’ risk management and underwriting capabilities. See “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management—Single-Family Acquisition and Servicing Policies and Underwriting and Servicing Standards” for more information on Desktop Underwriter.

See “Business—Executive Summary—Serving Customer Needs and Improving Our Business Efficiency” in our 2014 Form 10-K for a discussion of other actions we have taken and are taking to better serve our customer needs and improve our business efficiency.

Helping to Build a Sustainable Housing Finance System

We continue to invest significant resources towards helping to build a safer and sustainable housing finance system, primarily through pursuing the strategic goals identified by our conservator. FHFA’s current strategic goals are to:


•	Maintain, in a safe and sound manner, credit availability and foreclosure prevention activities for new and refinanced mortgages to foster liquid, efficient, competitive and resilient national housing finance markets.


•	Reduce taxpayer risk through increasing the role of private capital in the mortgage market.


•	Build a new single-family securitization infrastructure for use by Fannie Mae and Freddie Mac and adaptable for use by other participants in the secondary market in the future.

In January 2015, FHFA released annual corporate performance objectives for Fannie Mae and Freddie Mac, referred to as the 2015 conservatorship scorecard, which details specific priorities for implementing FHFA’s strategic goals, including objectives designed to further the goal of reforming the housing finance system. We describe below some of the actions we have taken in 2015 pursuant to the mandates of the scorecard in order to build the policies and infrastructure for a sustainable housing finance system.

Credit Risk Transfer Transactions: Connecticut Avenue Securities^TM. FHFA’s 2015 conservatorship scorecard includes an objective relating to credit risk transfer transactions. The goal of these transactions is, to the extent economically sensible, to transfer a limited portion of the existing credit risk on a portion of our single-family guaranty book of business in order to reduce the risk to taxpayers of future borrower defaults. Our primary method of achieving this objective has been through the issuance of our Connecticut Avenue Securities^TM (“CAS”), which transfer some of the credit risk associated with losses on the underlying mortgage loans to investors in these securities. During the first quarter of 2015, we issued $1.5 billion in CAS, transferring some of the credit risk on single-family mortgages with an unpaid principal balance of $50.2 billion. See “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management—Risk Sharing Transactions” for more information on CAS.

Nonperforming Loan Sales. Another objective included in FHFA’s 2015 conservatorship scorecard relates to implementing key loss mitigation activities, including those that enable borrowers to stay in their homes and avoid foreclosure where possible. These activities include developing and executing strategies to reduce the number of severely aged delinquent loans we hold, considering tools such as nonperforming loan (“NPL”) sales. The strategies should help improve outcomes in hardest hit markets. On March 2, 2015, FHFA announced enhanced requirements for NPL sales by Fannie Mae and Freddie Mac. In the announcement, the Director of FHFA indicated FHFA’s expectation that, with these enhanced requirements, NPL sales will result in favorable outcomes for borrowers and local communities. We plan to build NPL sales into a programmatic offering. In April 2015, we began marketing our first bulk NPL sale.

Mortgage Insurance. FHFA’s 2015 conservatorship scorecard also includes an objective relating to implementing final mortgage insurer eligibility requirements. These reforms are intended to strengthen our mortgage insurer counterparties and reduce the risk to taxpayers of future defaults by mortgage insurers on their obligations to the GSEs. On April 17, 2015, we announced and published updated eligibility standards for approved private mortgage insurers. The new standards include enhanced financial requirements and are designed to ensure that mortgage insurers have sufficient liquid assets to pay all claims under a hypothetical future stress scenario. The new standards also set forth enhanced operational performance expectations and define remedial actions that may be imposed should an approved mortgage insurer fail to comply with the revised requirements. See “Risk Management—Credit Risk Management—Institutional Counterparty Credit Risk Management” for additional information on these new standards.

Single Security. FHFA’s 2014 and 2015 conservatorship scorecards include objectives relating to the development of a single mortgage-backed security for Fannie Mae and Freddie Mac. FHFA believes a single security would increase liquidity in the housing finance market. The development of the single security is expected to be a multi-year initiative. In the first quarter of 2015, we worked on a variety of issues relating to the implementation of the single security, including accounting matters, communication planning, risk assessments, legal and contractual issues, trust matters, disclosures, and system development and testing work with the common securitization platform. See “Housing Finance Reform—Conservator Developments” in our 2014 Form 10-K for information on FHFA’s single security proposal and the common securitization platform and “Risk Factors” in our 2014 Form 10-K for a discussion of the risks to our business associated with a single security for Fannie Mae and Freddie Mac.

For more information on FHFA’s 2015 conservatorship scorecard objectives, see our Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on January 20, 2015. For more information on our initiatives in pursuit of these objectives, see “Business—Executive Summary—Helping to Build a Sustainable Housing Finance System” in our 2014 Form 10-K.

Treasury Draws and Dividend Payments

From 2009 through the first quarter of 2012, we received a total of $116.1 billion from Treasury under the senior preferred stock purchase agreement. This funding provided us with the capital and liquidity needed to fulfill our mission of providing liquidity and support to the nation’s housing finance markets and to avoid a trigger of mandatory receivership under the Federal Housing Finance Regulatory Reform Act of 2008 (the “2008 Reform Act”). In addition, a portion of the $116.1 billion we received from Treasury was drawn to pay dividends to Treasury because, prior to 2013, our dividend payments on the senior preferred stock accrued at an annual rate of 10%, and we were directed by our conservator to pay these dividends

to Treasury each quarter even when we did not have sufficient income to pay the dividend. We have not received funds from Treasury under the agreement since the first quarter of 2012. As of the date of this filing, the maximum amount of remaining funding under the agreement is $117.6 billion. From 2008 through the first quarter of 2015, we paid a total of $136.4 billion in dividends to Treasury on the senior preferred stock. Under the terms of the senior preferred stock purchase agreement, dividend payments do not offset prior Treasury draws, and we are not permitted to pay down draws we have made under the agreement except in limited circumstances. Accordingly, the current aggregate liquidation preference of the senior preferred stock is $117.1 billion, due to the initial $1.0 billion liquidation preference of the senior preferred stock (for which we did not receive cash proceeds) and the $116.1 billion we have drawn from Treasury.

The Director of FHFA directs us to make dividend payments on the senior preferred stock on a quarterly basis. We expect to pay Treasury an additional senior preferred stock dividend of $1.8 billion by June 30, 2015 for the second quarter of 2015.

Housing and Mortgage Market and Economic Conditions

Economic growth slowed in the first quarter of 2015 compared with the fourth quarter of 2014. According to the U.S. Bureau of Economic Analysis advance estimate, the inflation-adjusted U.S. gross domestic product, or GDP, rose by 0.2% on an annualized basis in the first quarter of 2015, compared with an increase of 2.2% in the fourth quarter of 2014. The overall economy gained an estimated 591,000 non-farm jobs in the first quarter of 2015. According to the U.S. Bureau of Labor Statistics, over the 12 months ending in March 2015, the economy created an estimated 3.1 million non-farm jobs. The unemployment rate was 5.5% in March 2015, compared with 5.6% in December 2014.

According to the Federal Reserve, total U.S. residential mortgage debt outstanding, which includes $9.9 trillion of single-family debt outstanding, was estimated to be approximately $10.9 trillion as of December 31, 2014 (the latest date for which information is available), compared with $10.8 trillion as of September 30, 2014.

Housing sales were mixed, with existing home sales declining and new home sales rising, during the first quarter of 2015 as compared with the fourth quarter of 2014. Total existing home sales averaged 5.0 million units annualized in the first quarter of 2015, a 1.8% decrease from the fourth quarter of 2014, according to data from the National Association of REALTORS^®. Sales of foreclosed homes and preforeclosure, or “short,” sales (together, “distressed sales”) accounted for 10% of existing home sales in March 2015, compared with 11% in December 2014 and 14% in March 2014. According to the U.S. Census Bureau, new single-family home sales increased during the first quarter of 2015, averaging an annualized rate of 513,000 units, a 8.8% increase from the fourth quarter of 2014.

The number of months’ supply, or the inventory/sales ratio, of available existing homes and of new homes increased in the first quarter of 2015. According to the U.S. Census Bureau, the months’ supply of new single-family unsold homes was 5.3 months as of March 31, 2015, compared with 5.1 months as of December 31, 2014. According to the National Association of REALTORS^®, the months’ supply of existing single-family unsold homes was 4.6 months as of March 31, 2015, compared with a 4.4 months’ supply as of December 31, 2014.

The overall mortgage market serious delinquency rate, which has trended down since peaking in the fourth quarter of 2009, remained above long-term averages at 4.2% as of March 31, 2015, according to the Mortgage Bankers Association National Delinquency Survey, compared with 4.5% as of December 31, 2014. We provide information about Fannie Mae’s serious delinquency rate, which also decreased in the first quarter of 2015, in “Single-Family Guaranty Book of Business—Credit Performance.”

Based on our home price index, we estimate that home prices on a national basis increased by 0.4% in the first quarter of 2015, following increases of 4.6% in 2014 and 8.0% in 2013. Despite the recent increases in home prices, we estimate that, through March 31, 2015, home prices on a national basis remained 9.9% below their peak in the third quarter of 2006. Our home price estimates are based on preliminary data and are subject to change as additional data become available.

Many homeowners continue to have “negative equity” in their homes as a result of declines in home prices since 2006, which means their mortgage principal balance exceeds the current market value of their home. This increases the likelihood that borrowers will abandon their mortgage obligations and that the loans will become delinquent and proceed to foreclosure. According to CoreLogic, Inc. the number of residential properties with mortgages in a negative equity position in the fourth quarter of 2014 rose slightly, reflecting the typical weakness in home values during the final quarter of the year, increasing to approximately 5.4 million from 5.2 million in the third quarter of 2014, but still below the 6.6 million residential properties with mortgages in a negative equity position in the fourth quarter of 2013. The percentage of properties with mortgages in a negative equity position in the fourth quarter of 2014 was 10.8%, up from 10.4% in the third quarter of 2014 but down from 13.4% in the fourth quarter of 2013.

Thirty-year fixed-rate mortgage rates ended the quarter at 3.69% for the week of April 2, 2015, down from 3.87% for the week of December 31, 2014, according to the Freddie Mac Primary Mortgage Market Survey^®.

During the first quarter of 2015, the multifamily sector continued to exhibit stable fundamentals, according to preliminary third-party data, with flat vacancy levels and positive rent growth. The national multifamily vacancy rate for institutional investment-type apartment properties was an estimated 5.0% as of March 31, 2015, the same rate as of both December 31, 2014 and March 31, 2014.

National asking rents increased by an estimated 0.5% during both the first quarter of 2015 and the fourth quarter of 2014. Continued demand for multifamily rental units was reflected in the estimated positive net absorption (that is, the net change in the number of occupied rental units during the time period) of approximately 37,000 units during the first quarter of 2015, according to preliminary data from Reis, Inc., compared with approximately 41,000 units during the fourth quarter of 2014.

As a result of the continued demand for multifamily rental units over the past few years, there has been an increase in the amount of new multifamily construction development nationally. Approximately 340,000 new multifamily units are expected to be completed this year. The bulk of this new supply is concentrated in a limited number of metropolitan areas. We believe this increase in supply will result in a temporary slowdown in net absorption rates, occupancy levels and effective rents in those areas throughout 2015. In addition, because estimated multifamily rent growth has outpaced wage growth over the past few years, ongoing multifamily rental housing affordability remains a concern. Nevertheless, we expect overall national rental market supply and demand to remain in balance over the longer term, based on expected construction completions, expected obsolescence, positive rental household formation trends and expected increases in the population of 20- to 34-year olds, which is the primary age group that tends to rent multifamily housing.

Outlook

Uncertainty Regarding our Future Status. We expect continued significant uncertainty regarding the future of our company and the housing finance system, including how long the company will continue to be in its current form, the extent of our role in the market, what form we will have, what ownership interest, if any, our current common and preferred stockholders will hold in us after the conservatorship is terminated and whether we will continue to exist following conservatorship.

We cannot predict the prospects for the enactment, timing or final content of housing finance reform legislation. See “Business—Housing Finance Reform” in our 2014 Form 10-K, for a discussion of proposals for reform of the housing finance system, including the GSEs, that could materially affect our business, including proposals to wind down Fannie Mae and Freddie Mac. See “Risk Factors” in both this report and in our 2014 Form 10-K for a discussion of the risks to our business relating to the uncertain future of our company.

Financial Results. Our financial results continued to be strong in the first quarter of 2015, with net income of $1.9 billion. We expect to remain profitable on an annual basis for the foreseeable future; however, we expect our earnings in 2015 and future years will be substantially lower than our earnings for 2014, primarily due to our expectation of substantially lower income from resolution agreements, continued declines in net interest income from our retained mortgage portfolio assets and lower credit-related income. In addition, certain factors, such as changes in interest rates or home prices, could result in significant volatility in our financial results from quarter to quarter or year to year. Our future financial results also will be affected by a number of other factors, including: our guaranty fee rates; the volume of single-family mortgage originations in the future; the size, composition and quality of our retained mortgage portfolio and guaranty book of business; and economic and housing market conditions. Our expectations for our future financial results do not take into account the impact on our business of potential future legislative or regulatory changes, which could have a material impact on our financial results, particularly the enactment of housing finance reform legislation as noted in “Uncertainty Regarding our Future Status” above.

Under the terms of the senior preferred stock, our capital reserve will decline by $600 million each year until it reaches zero in 2018. Although we expect to remain profitable on an annual basis for the foreseeable future, due to our declining capital reserve, our expectation of substantially lower earnings in future years than our earnings for 2014, and the potential for significant volatility in our financial results, we could experience a net worth deficit in a future quarter, particularly as our capital reserve approaches zero. If that were to occur, we would be required to draw additional funds from Treasury under the senior preferred stock purchase agreement in order to avoid being placed into receivership. See “Risk Factors” in our 2014 Form 10-K for a discussion of the risks associated with our declining capital reserves.

Revenues. We currently have two primary sources of revenues: (1) the guaranty fees we receive for managing the credit risk on loans underlying Fannie Mae MBS held by third parties; and (2) the difference between interest income earned on the assets in our retained mortgage portfolio and the interest expense associated with the debt that funds those assets. Our “retained mortgage portfolio” refers to the mortgage-related assets we own (which excludes the portion of assets held by consolidated MBS trusts that back mortgage-related securities owned by third parties). In recent years, an increasing portion of our net interest income has been derived from guaranty fees rather than from our retained mortgage portfolio assets, due to the impact of guaranty fee increases and the shrinking of our retained mortgage portfolio. We estimate that a majority of our

net interest income in the first quarter of 2015 was derived from guaranty fees on loans underlying our Fannie Mae MBS. We expect that guaranty fees will continue to account for an increasing portion of our net interest income.

We expect continued decreases in the size of our retained mortgage portfolio, which will continue to negatively impact our net interest income and net revenues; however, we also expect increases in our guaranty fee revenues will partially offset the negative impact of the decline in our retained mortgage portfolio. We expect our guaranty fee revenues to increase over the next several years, as loans with lower guaranty fees liquidate from our book of business and are replaced with new loans with higher guaranty fees. The extent to which the positive impact of increased guaranty fee revenues will offset the negative impact of the decline in the size of our retained mortgage portfolio will depend on many factors, including: changes to guaranty fee pricing we may make in the future and their impact on our competitive environment and guaranty fee revenues; the size, composition and quality of our guaranty book of business; the life of the loans in our guaranty book of business; the size, composition and quality of our retained mortgage portfolio, including the pace at which we are required by our conservator to reduce the size of our portfolio and the types of assets we are required to sell; economic and housing market conditions, including changes in interest rates; our market share; and legislative and regulatory changes.

Dividend Obligations to Treasury. We expect to retain only a limited amount of any future net worth because we are required by the dividend provisions of the senior preferred stock and quarterly directives from our conservator to pay Treasury each quarter the amount, if any, by which our net worth as of the end of the immediately preceding fiscal quarter exceeds an applicable capital reserve amount. This capital reserve amount is $1.8 billion for each quarter of 2015 and continues to decrease by $600 million annually until it reaches zero in 2018.

As described in “Legal Proceedings” and “Note 16, Commitments and Contingencies,” several lawsuits have been filed by preferred and common stockholders of Fannie Mae and Freddie Mac against the United States, Treasury and/or FHFA challenging actions taken by the defendants relating to the senior preferred stock purchase agreements and the conservatorships of Fannie Mae and Freddie Mac, including challenges to the net worth sweep dividend provisions of the senior preferred stock. We cannot predict the course or the outcome of these lawsuits, or the actions the U.S. government (including Treasury or FHFA) may take in response to any ruling or finding in any of these lawsuits.

Overall Market Conditions. We expect that single-family mortgage loan serious delinquency and severity rates will continue their downward trend, but at a slower pace than in recent years. We expect that single-family serious delinquency and severity rates will remain high compared with pre-housing crisis levels because it will take some time for the remaining delinquent loans with high mark-to-market LTV ratios originated prior to 2009 to work their way through the foreclosure process. Despite steady demand and stable fundamentals at the national level, the multifamily sector may continue to exhibit below average fundamentals in certain local markets and with certain properties.

We forecast that total originations in the U.S. single-family mortgage market in 2015 will increase from 2014 levels by approximately 14%, from an estimated $1.2 trillion in 2014 to $1.4 trillion in 2015, and that the amount of originations in the U.S. single-family mortgage market that are refinancings will increase from an estimated $507 billion in 2014 to $609 billion in 2015.

Home Prices. Based on our home price index, we estimate that home prices on a national basis increased by 0.4% in the first quarter of 2015. We expect the rate of home price appreciation in 2015 to be similar to the rate in 2014. Future home price changes may be very different from our expectations as a result of significant inherent uncertainty in the current market environment, including uncertainty about the effect of recent and future changes in mortgage rates; actions the federal government has taken and may take with respect to fiscal policies, mortgage finance programs and policies, and housing finance reform; the Federal Reserve’s purchases and sales of mortgage-backed securities; the impact of those actions on and changes generally in unemployment and the general economic and interest rate environment; and the impact on the U.S. economy of global economic and political conditions. We also expect significant regional variation in the timing and rate of home price growth.

Credit Losses. Our credit losses, which include our charge-offs, net of recoveries, reflect our realization of losses on our loans. For the vast majority of our single-family loans, we charge off a loan at the time of foreclosure or other liquidation event (such as when we accept a short sale or deed-in-lieu of foreclosure). However, under our approach to adopting on January 1, 2015 the charge-off provisions of FHFA’s Advisory Bulletin AB 2012-02, “Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention” (the “Advisory Bulletin”), we began to charge off a portion of a relatively small subset of delinquent loans (as well as preforeclosure property taxes and insurance receivable that pertain to the loans) that are deemed uncollectible prior to foreclosure. The charge-off portion is classified as a “loss” pursuant to the Advisory Bulletin. Our credit losses in the first quarter of 2015 were impacted by implementation of these provisions, as well as by our implementation, effective January 1, 2015, of a change in our accounting policy for the treatment of interest previously accrued, but not collected, at the date that loans are placed on

nonaccrual status. Upon adopting this accounting policy change, we charged off the accrued interest receivable balance on our nonaccrual loans. Our credit losses were $5.4 billion in the first quarter of 2015, compared with $1.6 billion in the fourth quarter of 2014 and $1.1 billion in the first quarter of 2014. Our credit losses in the first quarter of 2015 included (1) $1.8 billion in charge-offs of loans held for investment and $724 million in charge-offs of preforeclosure property taxes and insurance receivable that we recognized on January 1, 2015 under our approach to adopting the charge-off provisions of the Advisory Bulletin and (2) $1.1 billion in charge-offs we recognized on January 1, 2015 upon our implementation of the change in our accounting policy for nonaccrual loans. Because the increase in our charge-off amounts in the first quarter of 2015 compared with the first quarter of 2014 was driven primarily by our initial adoption of the Advisory Bulletin’s charge-off provisions and our initial implementation of our accounting policy change, we expect our credit losses to resume their downward trend in future quarters. See “Business—Our Charter and Regulation of Our Activities—FHFA Advisory Bulletin Regarding Framework for Adversely Classifying Loans” in our 2014 Form 10-K for further information about this Advisory Bulletin. See “Note 1, Summary of Significant Accounting Policies” for information about our change in accounting principle for nonaccrual loans.

Loss Reserves. Our total loss reserves consist of (1) our allowance for loan losses, (2) our allowance for preforeclosure property taxes and insurance receivable and (3) our reserve for guaranty losses. Prior to our implementation on January 1, 2015 of the change in our accounting policy for nonaccrual loans, our total loss reserves also included an allowance for accrued interest receivable. Our total loss reserves were $32.9 billion as of March 31, 2015, down from $38.2 billion as of December 31, 2014. The decrease in our total loss reserves during the first quarter of 2015 was significantly impacted by our approach to adopting the charge-off provisions of the Advisory Bulletin and our implementation of the change in our accounting policy for nonaccrual loans. The charge-offs of held-for-investment loans, preforeclosure property taxes and insurance receivable and accrued interest receivable described above in “Credit Losses” reduced our allowance for loan losses, our allowance for preforeclosure property taxes and insurance receivable and our allowance for accrued interest receivable. We expect our approach to adopting the Advisory Bulletin’s charge-off provisions and our charge-offs resulting from implementing our change in accounting policy for nonaccrual loans will decrease the amount of future charge-offs on these same loans from what they otherwise would have been.

Although our loss reserves have declined substantially from their peak and are expected to decline further, we expect our loss reserves will remain elevated relative to the levels experienced prior to the 2008 housing crisis for an extended period because (1) we expect future defaults on loans that we acquired prior to 2009 and the resulting charge-offs will occur over a period of years and (2) a significant portion of our reserves represents concessions granted to borrowers upon modification of their loans and our reserves will continue to reflect these concessions until the loans are fully repaid or default.

Factors that Could Cause Actual Results to be Materially Different from Our Estimates and Expectations. We present a number of estimates and expectations in this executive summary regarding our future performance, including estimates and expectations regarding our future financial results and profitability, the level and sources of our future revenues and net interest income, our future dividend payments to Treasury, the level and credit characteristics of, and the credit risk posed by, our future acquisitions, our future credit losses and our future loss reserves. We also present a number of estimates and expectations in this executive summary regarding future housing market conditions, including expectations regarding future single-family loan delinquency and severity rates, future mortgage originations, future refinancings, future home prices and future conditions in the multifamily market. These estimates and expectations are forward-looking statements based on our current assumptions regarding numerous factors. Our future estimates of our performance and housing market conditions, as well as the actual results, may differ materially from our current estimates and expectations as a result of: the timing and level of, as well as regional variation in, home price changes; changes in interest rates, unemployment rates and other macroeconomic and housing market variables; our future guaranty fee pricing and the impact of that pricing on our guaranty fee revenues and competitive environment; our future serious delinquency rates; our future objectives and activities in support of those objectives, including actions we may take to reach additional underserved creditworthy borrowers; future legislative or regulatory requirements or changes that have a significant impact on our business, such as a requirement that we implement a principal forgiveness program or the enactment of housing finance reform legislation; actions we may be required to take by FHFA, as our conservator or as our regulator, such as changes in the type of business we do or implementation of a single GSE security; future updates to our models relating to our loss reserves, including the assumptions used by these models; future changes to our accounting policies; significant changes in modification and foreclosure activity; the volume and pace of future NPL sales and their impact on our results and serious delinquency rates; changes in borrower behavior, such as an increasing number of underwater borrowers who strategically default on their mortgage loans; the effectiveness of our loss mitigation strategies, management of our REO inventory and pursuit of contractual remedies; whether our counterparties meet their obligations in full; resolution or settlement agreements we may enter into with our counterparties; changes in the fiscal and monetary policies of the Federal Reserve, including any change in the Federal Reserve’s policy towards the reinvestment of principal payments of mortgage-backed securities or any future

sales of such securities; changes in the fair value of our assets and liabilities; changes in generally accepted accounting principles (“GAAP”); credit availability; global political risks; natural disasters, terrorist attacks, pandemics or other major disruptive events; information security breaches; and other factors, including those discussed in “Forward-Looking Statements,” “Risk Factors” and elsewhere in this report and in our 2014 Form 10-K. Due to the large size of our guaranty book of business, even small changes in these factors could have a significant impact on our financial results for a particular period.



LEGISLATIVE AND REGULATORY DEVELOPMENTS

The information in this section updates and supplements information regarding legislative and regulatory developments set forth in “Business—Housing Finance Reform” and “Business—Our Charter and Regulation of Our Activities” in our 2014 Form 10-K. Also see “Risk Factors” in this report and in our 2014 Form 10-K for a discussion of risks relating to legislative and regulatory matters.

Changes to Our Single-Family Guaranty Fee Pricing

On April 17, 2015, FHFA announced the results of its review of single-family guaranty fees that Fannie Mae and Freddie Mac charge lenders. FHFA determined that current fees, on average, are at an appropriate level and that it would also be appropriate to make some modest changes to our single-family loan level price adjustments, or LLPAs, which are one-time cash fees that we charge at the time we acquire a loan based on the credit characteristics of the loan. Specifically, FHFA directed us to eliminate the 25 basis point adverse market delivery charge that has been assessed on all single-family mortgages purchased by us since 2008, and to attempt to replace the revenue that resulted from the adverse market delivery charge with targeted increases in LLPAs to address various risk-based and access-to-credit considerations. These targeted increases include small increases in LLPAs for loans with both lower LTV ratios and higher FICO credit scores, as well as for loans with certain risk attributes (that is, cash-out refinances, investment properties, loans with secondary financing, and jumbo conforming loans). The fee changes will become effective for whole loans we purchase on or after September 1, 2015 and for loans we acquire in lender swap transactions for Fannie Mae MBS with issue dates on or after September 1, 2015.

In its announcement, FHFA stated that, since all of the guaranty fee changes are small, FHFA does not expect the adjustments to cause any material changes to our loan volume in any of the loan categories and expects the small changes to be revenue neutral. It is possible that, by reducing the differentiation in our pricing for loans with differing risk characteristics, these changes in our LLPAs could increase or decrease our credit risk in the event of a shift in the mix of single-family loans we acquire. For example, pricing increases could result in some of our lender customers retaining lower credit risk loans for their portfolio or delivering them to our competitors instead of delivering the loans to us. For more information on the potential impact of changes to our single-family guaranty fee pricing on our credit risk profile, revenues and business, as well as a discussion of risks associated with FHFA’s ability to direct us to change our guaranty fee pricing and our dependence on FHFA to approve changes to our national LLPAs, see our discussion of the effect of conservatorship on our business activities in “Risk Factors” in our 2014 Form 10-K.

FHFA Communication on Compensation

The Board of Directors of Fannie Mae received a communication on executive compensation from FHFA Director Melvin L. Watt as follows:

“Fannie Mae is authorized to submit a proposal for FHFA review and consideration on executive compensation for the position of Fannie Mae Chief Executive Officer (CEO) to address the Board’s obligation and FHFA’s conservatorship and supervisory objectives of providing for CEO retention; effective succession planning for the CEO position; and continuity, efficiency and stability of operations during this extended period of conservatorship in which the future of the Enterprise is uncertain and the Enterprise is engaged in market transformative work. Any proposal submitted under this authorization must be consistent with meeting the above objectives; may not propose adjustment of CEO compensation before the third anniversary date of the current CEO (June 5, 2015); and may not propose compensation for the CEO that is higher than the 25th percentile of the market, using the agreed-upon comparator group for FHFA evaluation of compensation of Fannie Mae’s executive officers.

A proposal must comply with applicable law, including 12 USC 4518(a) and 4518a, and must be consistent with Fannie Mae’s charter act, 12 USC 1723a(d)(2). In particular, compensation must be reasonable and comparable with similar positions at similar companies and must take into consideration Fannie Mae’s status in conservatorship and FHFA’s statutory power as conservator to preserve and conserve assets, 12 USC 4617(b). Recommendations must include pay for performance aspects and may not include a ‘bonus.’”

Affordable Housing Allocations

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the 2008 Reform Act, (together, the “GSE Act”) requires us and Freddie Mac to set aside each year an amount equal to 4.2 basis points for each dollar of the unpaid principal balance of our total new business purchases to fund HUD’s Housing Trust Fund and Treasury’s Capital Magnet Fund. New business purchases consist of single-family and multifamily whole mortgage loans purchased during the period and single-family and multifamily mortgage loans underlying Fannie Mae MBS issued during the period pursuant to lender swaps. These allocations were temporarily suspended by FHFA in November 2008, but in December 2014 FHFA ended the temporary suspension effective for 2015. As a result, we are required to set aside amounts during each year and to allocate or otherwise transfer these amounts within 60 days after the end of the year, unless we have made a draw from Treasury under the terms of the senior preferred stock purchase agreement based on a net worth deficit for any quarter of the year, or unless such allocation or transfer would cause us to have to make a draw from Treasury, in which case we will make no allocation or transfer for that year and the amounts accrued for that year will be reversed. In December 2014 FHFA issued an interim final rule prohibiting Fannie Mae and Freddie Mac from passing through the cost of these allocations to the originators of mortgage loans that we purchase or securitize, and in March 2015 FHFA issued a final rule continuing this rule. In the first quarter of 2015, our new business purchases totaled $124.0 billion, which resulted in our recording $52 million as an expense in our condensed consolidated statements of operations and comprehensive income. We expect to allocate these funds, plus additional amounts to be accrued based on our new business purchases in subsequent quarters of 2015, in February 2016. See “Business—Our Charter and Regulation of Our Activities—The GSE Act—Affordable Housing Allocations” in our 2014 Form 10-K for more information regarding these allocations.

2014 Housing Goals Performance

We are subject to housing goals, which establish specified requirements for our mortgage acquisitions relating to affordability or location. Our single-family performance is measured against the lower of benchmarks established by FHFA or goals-qualifying originations in the primary mortgage market. Multifamily goals are established as a number of units to be financed.

For 2014, we believe we met all of our single-family benchmarks with the exception of the very low-income families home purchase goal. We believe we also met both of our 2014 multifamily goals. Final performance results will be calculated and published by FHFA after the release in the fall of 2015 of data reported by primary market originators under the Home Mortgage Disclosure Act (“HMDA”). To determine whether we met our very low-income families home purchase goal, FHFA will compare our performance with that of the market. We will be in compliance with the single-family very low-income families home purchase goal if we meet the market share measure. See “Business—Our Charter and Regulation of Our Activities—The GSE Act—Housing Goals and Duty to Serve Undeserved Markets—Housing Goals for 2012 to 2014” in our 2014 Form 10-K for a more detailed discussion of our housing goals.

Dodd-Frank Act—FHFA Rule Regarding Stress Testing

Pursuant to an FHFA rule issued in 2013 implementing a provision of the Dodd-Frank Act, we are required to conduct an annual stress test, based on our data as of September 30, using three different scenarios of financial conditions provided by FHFA: baseline, adverse and severely adverse. As required by the rule, we published our most recent stress test results for the severely adverse scenario on our Web site on April 30, 2015.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in the condensed consolidated financial statements. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We describe our most significant accounting policies in “Note 1, Summary of Significant Accounting Policies” in this report and in our 2014 Form 10-K.

We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions. Management has discussed any significant changes in judgments and assumptions in applying our critical accounting policies with the Audit Committee of our Board of Directors. See “Risk Factors” in our 2014 Form 10-K for a discussion of the risks associated with the need for management to make judgments and estimates in applying our accounting policies and methods. We have identified three of our accounting policies as critical because they involve significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of

reasonably different estimates and assumptions could have a material impact on our reported results of operations or financial condition. These critical accounting policies and estimates are as follows:

• Fair Value Measurement;

• Total Loss Reserves; and

• Deferred Tax Assets.

See “MD&A—Critical Accounting Policies and Estimates” in our 2014 Form 10-K for a discussion of these critical accounting policies and estimates.



CONSOLIDATED RESULTS OF OPERATIONS

This section provides a discussion of our condensed consolidated results of operations for the periods indicated and should be read together with our condensed consolidated financial statements, including the accompanying notes.

Table 3 displays a summary of our condensed consolidated results of operations for the periods indicated.

Table 3: Summary of Condensed Consolidated Results of Operations



	For the Three Months
	Ended March 31,
	2015			2014			Variance
	(Dollars in millions)
Net interest income	$	5,067		$	4,738		$	329
Fee and other income	308			4,355			(4,047		)
Net revenues	5,375			9,093			(3,718		)
Investment gains, net	342			95			247
Fair value losses, net	(1,919		)	(1,190		)	(729		)
Administrative expenses	(723		)	(672		)	(51		)
Credit-related income
Benefit for credit losses	533			774			(241		)
Foreclosed property (expense) income	(473		)	262			(735		)
Total credit-related income	60			1,036			(976		)
Other non-interest expenses⁽¹⁾	(377		)	(453		)	76
Income before federal income taxes	2,758			7,909			(5,151		)
Provision for federal income taxes	(870		)	(2,584		)	1,714
Net income attributable to Fannie Mae	$	1,888		$	5,325		$	(3,437	)
Total comprehensive income attributable to Fannie Mae	$	1,796		$	5,697		$	(3,901	)

__________


⁽¹⁾	Consists of TCCA fees, debt extinguishment gains, net, and other expenses, net.

Net Interest Income

We currently have two primary sources of net interest income: (1) the guaranty fees we receive for managing the credit risk on loans underlying Fannie Mae MBS held by third parties, which we refer to as mortgage loans of consolidated trusts; and (2) the difference between interest income earned on the assets in our retained mortgage portfolio and the interest expense associated with the debt that funds those assets.

Table 4 displays an analysis of our net interest income, average balances, and related yields earned on assets and incurred on liabilities for the periods indicated. For most components of the average balances, we use a daily weighted average of amortized cost. When daily average balance information is not available, such as for mortgage loans, we use monthly averages. Table 5 displays the change in our net interest income between periods and the extent to which that variance is attributable to: (1) changes in the volume of our interest-earning assets and interest-bearing liabilities or (2) changes in the interest rates of these assets and liabilities.

Table 4: Analysis of Net Interest Income and Yield



	For the Three Months Ended March 31,
	2015								2014
	Average Balance			Interest Income/ Expense			Average Rates Earned/Paid		Average Balance			Interest Income/ Expense			Average Rates Earned/Paid
	(Dollars in millions)
Interest-earning assets:
Mortgage loans of Fannie Mae	$	271,127		$	2,422		3.57	%	$	296,018		$	2,634		3.56	%
Mortgage loans of consolidated trusts	2,783,994			24,622			3.54		2,771,950			25,954			3.75
Total mortgage loans⁽¹⁾	3,055,121			27,044			3.54		3,067,968			28,588			3.73
Mortgage-related securities	121,734			1,426			4.69		157,595			1,819			4.62
Elimination of Fannie Mae MBS held in retained mortgage portfolio	(83,587		)	(947		)	4.53		(107,798		)	(1,258		)	4.67
Total mortgage-related securities, net	38,147			479			5.02		49,797			561			4.51
Non-mortgage securities⁽²⁾	43,941			12			0.11		33,626			6			0.07
Federal funds sold and securities purchased under agreements to resell or similar arrangements	33,409			12			0.14		33,395			5			0.06
Advances to lenders	4,001			21			2.10		3,213			19			2.37
Total interest-earning assets	$	3,174,619		$	27,568		3.47	%	$	3,187,999		$	29,179		3.66	%
Interest-bearing liabilities:
Short-term debt	$	98,043		$	29		0.12	%	$	62,931		$	20		0.13	%
Long-term debt	358,182			1,957			2.19		442,368			2,345			2.12
Total short-term and long-term funding debt	456,225			1,986			1.74		505,299			2,365			1.87
Debt securities of consolidated trusts	2,849,447			21,462			3.01		2,822,418			23,334			3.31
Elimination of Fannie Mae MBS held in retained mortgage portfolio	(83,587		)	(947		)	4.53		(107,798		)	(1,258		)	4.67
Total debt securities of consolidated trusts held by third parties	2,765,860			20,515			2.97		2,714,620			22,076			3.25
Total interest-bearing liabilities	$	3,222,085		$	22,501		2.79	%	$	3,219,919		$	24,441		3.04	%
Net interest income/net interest yield				$	5,067		0.64	%				$	4,738		0.59	%



	As of March 31,
	2015		2014
Selected benchmark interest rates
3-month LIBOR	0.27	%	0.23	%
2-year swap rate	0.81		0.55
5-year swap rate	1.53		1.80
10-year swap rate	2.02		2.84
30-year Fannie Mae MBS par coupon rate	2.65		3.44

__________

⁽¹⁾

Average balance includes mortgage loans on nonaccrual status. Interest income not recognized for loans on nonaccrual status was $412 million for the first quarter of 2015 compared with $527 million for the first quarter of 2014. Effective January 1, 2015, we changed our policy for the treatment of interest previously accrued, but not collected, at the date loans are placed on nonaccrual status. See “Note 1, Summary of Significant Accounting Policies” for information on this policy change.


⁽²⁾	Includes cash equivalents.

Table 5: Rate/Volume Analysis of Changes in Net Interest Income



	For the Three Months Ended
	March 31, 2015 vs. 2014
	Total			Variance Due to:⁽¹⁾
	Variance			Volume			Rate
	(Dollars in millions)
Interest income:
Mortgage loans of Fannie Mae	$	(212	)	$	(222	)	$	10
Mortgage loans of consolidated trusts	(1,332		)	112			(1,444		)
Total mortgage loans	(1,544		)	(110		)	(1,434		)
Total mortgage-related securities, net	(82		)	(145		)	63
Non-mortgage securities⁽²⁾	6			2			4
Federal funds sold and securities purchased under agreements to resell or similar arrangements	7			—			7
Advances to lenders	2			4			(2		)
Total interest income	$	(1,611	)	$	(249	)	$	(1,362	)
Interest expense:
Short-term debt	9			10			(1		)
Long-term debt	(388		)	(458		)	70
Total short-term and long-term funding debt	(379		)	(448		)	69
Total debt securities of consolidated trusts held by third parties	(1,561		)	497			(2,058		)
Total interest expense	$	(1,940	)	$	49		$	(1,989	)
Net interest income	$	329		$	(298	)	$	627

__________


⁽¹⁾	Combined rate/volume variances are allocated to both rate and volume based on the relative size of each variance.


⁽²⁾	Includes cash equivalents.

Net interest income and net interest yield increased in the first quarter of 2015 compared with the first quarter of 2014, primarily due to an increase in net amortization income as a result of an increase in prepayments on mortgage loans held by consolidated trusts. Higher guaranty fee income also contributed to an increase in net interest income as loans with higher guaranty fees have become a larger part of our guaranty book of business. We recognize almost all of our guaranty fee revenue in net interest income due to the consolidation of the substantial majority of loans underlying our MBS trusts on our balance sheet. The increase in net interest income was partially offset by a decline in the average balance of our retained mortgage portfolio, as we continued to reduce this portfolio pursuant to the requirements of our senior preferred stock purchase agreement with Treasury and FHFA’s additional portfolio cap. The average balance of our retained mortgage portfolio was 13% lower in the first quarter of 2015 than in the first quarter of 2014. See “Business Segment Results—The Capital Markets Group’s Mortgage Portfolio” for more information about our retained mortgage portfolio.

Fee and Other Income

Fee and other income includes transaction fees, technology fees, multifamily fees and other miscellaneous income. Fee and other income decreased in the first quarter of 2015 compared with the first quarter of 2014 due to revenue of $4.1 billion recognized in the first quarter of 2014 as a result of settlement agreements resolving certain lawsuits relating to PLS sold to us.

Investment Gains, Net

Investment gains, net include gains and losses recognized from the sale of available-for-sale (“AFS”) securities, gains and losses recognized on the securitization of loans and securities from our retained mortgage portfolio and net other-than-temporary impairments recognized on our investments. Investment gains increased in the first quarter of 2015 compared with the first quarter of 2014 primarily due to an increase in the amount of non-agency mortgage-related securities sold in the first quarter of 2015 compared with the amount of such securities that were sold in the first quarter of 2014.

Fair Value Losses, Net

Table 6 displays the components of our fair value gains and losses.

Table 6: Fair Value Losses, Net



	For the Three Months Ended March 31,
	2015			2014
	(Dollars in millions)
Risk management derivatives fair value losses attributable to:
Net contractual interest expense accruals on interest rate swaps	$	(229	)	$	(199	)
Net change in fair value during the period	(1,285		)	(741		)
Total risk management derivatives fair value losses, net	(1,514		)	(940		)
Mortgage commitment derivatives fair value losses, net	(239		)	(345		)
Total derivatives fair value losses, net	(1,753		)	(1,285		)
Trading securities gains, net	36			145
Other, net⁽¹⁾	(202		)	(50		)
Fair value losses, net	$	(1,919	)	$	(1,190	)

__________


⁽¹⁾	Consists of debt fair value gains (losses), net, which includes gains (losses) on CAS; debt foreign exchange gains (losses), net; and mortgage loans fair value gains (losses), net.

Risk Management Derivatives Fair Value Losses, Net

Risk management derivative instruments are an integral part of our interest rate risk management strategy. We supplement our issuance of debt securities with derivative instruments to further reduce interest rate risk. Risk management derivative fair value losses increased in the first quarter of 2015 compared with the first quarter of 2014 primarily as a result of larger declines in longer-term swap rates, which caused larger decreases in the fair value of our pay-fixed derivatives.

We present, by derivative instrument type, the fair value gains and losses, net on our derivatives for the three months ended March 31, 2015 and 2014 in “Note 9, Derivative Instruments.”

Mortgage Commitment Derivatives Fair Value Losses, Net

We recognized fair value losses on our mortgage commitments in the first quarter of 2015 and 2014 primarily due to losses on commitments to sell mortgage-related securities driven by an increase in prices as interest rates decreased during the commitment periods.

Credit-Related Income

We refer to our benefit (expense) for loan losses and guaranty losses collectively as our “benefit for credit losses.” Credit-related income consists of our benefit for credit losses and foreclosed property expense (income).

Benefit for Credit Losses

Table 7 displays the components of our total loss reserves and our total fair value losses previously recognized on loans purchased out of unconsolidated MBS trusts reflected in our condensed consolidated balance sheets. Because these fair value losses lowered our recorded loan balances, we have fewer inherent losses in our guaranty book of business and consequently require lower total loss reserves. For these reasons, we consider these fair value losses as an “effective reserve,” apart from our total loss reserves, to the extent that we expect to realize these amounts as credit losses on the acquired loans in the future. The fair value losses shown in Table 7 represent credit losses we expect to realize in the future or that will eventually be recovered, either through net interest income for loans that cure or through foreclosed property income for loans where the sale of the collateral exceeds our recorded investment in the loan. We exclude these fair value losses from our credit loss calculation as described in “Credit Loss Performance Metrics.”

Table 7: Total Loss Reserves



	As of
	March 31, 2015			December 31, 2014
		(Dollars in millions)
Allowance for loan losses		$	31,820		$	35,541
Reserve for guaranty losses		678			1,246
Combined loss reserves		32,498			36,787
Other⁽¹⁾		375			1,386
Total loss reserves		32,873			38,173
Fair value losses previously recognized on acquired credit-impaired loans⁽²⁾		9,440			9,864
Total loss reserves and fair value losses previously recognized on acquired credit-impaired loans		$	42,313		$	48,037

__________

⁽¹⁾

Includes allowances for accrued interest receivable and preforeclosure property taxes and insurance receivable. Effective January 1, 2015, we charged off accrued interest receivable associated with loans on nonaccrual status and eliminated the related allowance in connection with the our change in accounting policy related to the treatment of interest previously accrued, but not collected, at the date that loans are placed on nonaccrual status. See “Note 1, Summary of Significant Accounting Policies” for more information on this policy change.


⁽²⁾	Represents the fair value losses on loans purchased out of unconsolidated MBS trusts reflected in our condensed consolidated balance sheets.

Table 8 displays changes in our combined loss reserves.

Table 8: Changes in Combined Loss Reserves



	For the Three Months Ended March 31,
	2015			2014
	(Dollars in millions)
Changes in combined loss reserves:
Beginning balance	$	36,787		$	45,295
Benefit for credit losses	(533		)	(774		)
Charge-offs⁽¹⁾	(5,389		)	(1,627		)
Recoveries	622			392
Other⁽²⁾	1,011			145
Ending balance	$	32,498		$	43,431



	As of
	March 31, 2015				December 31, 2014
	(Dollars in millions)
Allocation of combined loss reserves:
Balance at end of each period attributable to:
Single-family		$	32,157			$	36,383
Multifamily		341				404
Total		$	32,498			$	36,787
Single-family and multifamily combined loss reserves as a percentage of applicable guaranty book of business:
Single-family		1.13		%		1.28		%
Multifamily		0.16				0.20
Combined loss reserves as a percentage of:
Total guaranty book of business		1.07		%		1.20		%
Recorded investment in nonaccrual loans		57.21				56.63

_________

⁽¹⁾

Includes charge-offs of (1) $1.8 billion in loans held for investment and $724 million in preforeclosure property taxes and insurance receivable in connection with our adoption of the Advisory Bulletin and (2) $1.1 billion in accrued interest receivable in connection with our adoption of a change in accounting principle related to the treatment of interest previously accrued, but not collected, at the date that loans are placed on nonaccrual status. See “Note 1, Summary of Significant Accounting Policies” for more information on this policy change.


⁽²⁾	Amounts represent changes in other loss reserves which are offset by amounts reflected in benefit for credit losses, charge-offs and recoveries.

The amount of our benefit or provision for credit losses varies from period to period based on changes in actual and expected

home prices, borrower payment behavior, the types and volumes of loss mitigation activities and foreclosures completed, and

actual and estimated recoveries from our mortgage insurer counterparties. See “Risk Management—Credit Risk Management—Institutional Counterparty Credit Risk Management” for information on mortgage insurers. In addition, our benefit or provision for credit losses and our loss reserves can be impacted by updates to the models, assumptions and data used in determining our allowance for loan losses.

We recognized a benefit for credit losses in the first quarter of 2015 primarily due to an increase in actual and forecasted home prices, a decline in actual and projected interest rates and the liquidation of mortgage loans. Our approach to the adoption of the charge-off provisions of the Advisory Bulletin on January 1, 2015 had no impact on the amount of benefit for credit losses that we recognized in the first quarter of 2015.

We recognized a benefit for credit losses in the first quarter of 2014 primarily due to a decline in mortgage interest rates as well as an increase in home prices.

We discuss our expectations regarding our future loss reserves in “Executive Summary—Outlook—Loss Reserves.”

Troubled Debt Restructurings and Nonaccrual Loans

Table 9 displays the composition of loans restructured in a troubled debt restructuring (“TDR”) that are on accrual status and loans on nonaccrual status. The table includes our recorded investment in held-for-investment and held-for-sale mortgage loans. For information on the impact of TDRs and other individually impaired loans on our allowance for loan losses, see “Note 3, Mortgage Loans.”

Table 9: Troubled Debt Restructurings and Nonaccrual Loans



		As of
	March 31, 2015			December 31, 2014
	(Dollars in millions)
TDRs on accrual status:
Single-family		$	145,784		$	144,649
Multifamily		638			645
Total TDRs on accrual status		$	146,422		$	145,294
Nonaccrual loans:
Single-family		$	55,997		$	64,136
Multifamily		807			823
Total nonaccrual loans		$	56,804		$	64,959
Accruing on-balance sheet loans past due 90 days or more⁽¹⁾		$	569		$	585



	For the Three Months
		Ended March 31,
		2015		2014
		(Dollars in millions)
Interest related to on-balance sheet TDRs and nonaccrual loans:
Interest income forgone⁽²⁾		$	1,666	$	1,760
Interest income recognized for the period⁽³⁾		1,323		1,369

__________


⁽¹⁾	Includes loans that, as of the end of each period, are 90 days or more past due and continuing to accrue interest. The majority of these amounts consists of loans insured or guaranteed by the U.S. government and loans for which we have recourse against the seller in the event of a default.


⁽²⁾	Represents the amount of interest income we did not recognize, but would have recognized during the period for nonaccrual loans and TDRs on accrual status as of the end of each period had the loans performed according to their original contractual terms.


⁽³⁾	Represents interest income recognized during the period for loans classified as either nonaccrual loans or TDRs on accrual status as of the end of each period. Includes primarily amounts accrued while the loans were performing and cash payments received on nonaccrual loans.

Foreclosed Property (Expense) Income

We recognized foreclosed property expense in the first quarter of 2015 compared with foreclosed property income in the first quarter of 2014. This change was due to income recognized as a result of resolutions of representation and warranty matters in the first quarter of 2014. In addition, we incurred more expenses related to our foreclosed properties and recognized lower income from outstanding deferred payment obligations from mortgage insurers in the first quarter of 2015 compared with the first quarter of 2014.

Credit Loss Performance Metrics

Our credit-related income should be considered in conjunction with our credit loss performance metrics. Our credit loss performance metrics, however, are not defined terms within GAAP and may not be calculated in the same manner as similarly titled measures reported by other companies. Because management does not view changes in the fair value of our mortgage loans as credit losses, we adjust our credit loss performance metrics for the impact associated with our acquisition of credit-impaired loans from unconsolidated MBS trusts. We also exclude interest forgone on nonaccrual loans and TDRs, other-than-temporary impairment losses resulting from deterioration in the credit quality of our mortgage-related securities and accretion of interest income on acquired credit-impaired loans from credit losses. We believe that credit loss performance

metrics may be useful to investors as the losses are presented as a percentage of our book of business and have historically been used by analysts, investors and other companies within the financial services industry. Moreover, by presenting credit losses with and without the effect of fair value losses associated with the acquisition of credit-impaired loans, investors are able to evaluate our credit performance on a more consistent basis among periods. Table 10 displays the components of our credit loss performance metrics as well as our single-family and multifamily initial charge-off severity rates.

Table 10: Credit Loss Performance Metrics



	For the Three Months Ended March 31,
	2015				2014
	Amount		Ratio⁽¹⁾		Amount			Ratio⁽¹⁾
	(Dollars in millions)
Charge-offs, net of recoveries	$	1,212	15.9	bps	$	1,235		16.0		bps
Adoption of Advisory Bulletin and change in accounting principle⁽²⁾	3,555		46.6		—			—
Foreclosed property expense (income)	473		6.2		(262		)	(3.4	)
Credit losses including the effect of fair value losses on acquired credit-impaired loans	5,240		68.7		973			12.6
Plus: Impact of acquired credit-impaired loans on charge offs and foreclosed property expense (income)⁽³⁾	136		1.8		160			2.1
Credit losses and credit loss ratio	$	5,376	70.5	bps	$	1,133		14.7		bps
Credit losses attributable to:
Single-family	$	5,373			$	1,127
Multifamily	3				6
Total	$	5,376			$	1,133
Single-family initial charge-off severity rate⁽⁴⁾			17.99	%				20.31		%
Multifamily initial charge-off severity rate⁽⁴⁾			23.60	%				29.91		%

__________


⁽¹⁾	Basis points are based on the annualized amount for each line item presented divided by the average guaranty book of business during the period.

⁽²⁾


⁽³⁾	Includes fair value losses from acquired credit-impaired loans.


⁽⁴⁾	Single-family and multifamily rates exclude fair value losses on credit-impaired loans acquired from MBS trusts and any costs, gains or losses associated with REO after initial acquisition through final disposition. Single-family rate excludes charge-offs prior to foreclosure and other liquidations, short sales and third-party sales. Multifamily rate is net of risk-sharing agreements.

Credit losses and our credit loss ratio increased in the first quarter of 2015 compared with the first quarter of 2014 primarily due to our adoption of the Advisory Bulletin beginning on January 1, 2015 as well as a change in our accounting policy for nonaccrual loans.

We discuss our expectations regarding our future credit losses in “Executive Summary—Outlook—Credit Losses.”

Other Non-Interest Expenses

Other non-interest expenses decreased in the first quarter of 2015 compared with the first quarter of 2014 primarily due to higher gains from the sale of partnership investments. These gains were partially offset by an increase in expenses related to TCCA fees in the first quarter of 2015 compared with the first quarter of 2014 due to an increase in the percentage of loans in our single-family guaranty book of business subject to TCCA fees. We expect the guaranty fees collected and expenses incurred under the TCCA to continue to increase in the future.



BUSINESS SEGMENT RESULTS

Results of our three business segments are intended to reflect each segment as if it were a stand-alone business. Under our segment reporting structure, the sum of the results for our three business segments does not equal our condensed consolidated results of operations as we separate the activity related to our consolidated trusts from the results generated by our three segments. In addition, because we apply accounting methods that differ from our condensed consolidated results for segment reporting purposes, we include an eliminations/adjustments category to reconcile our business segment results and the activity related to our consolidated trusts to our condensed consolidated results of operations. We describe the management reporting and allocation process used to generate our segment results in “Note 13, Segment Reporting” in our 2014 Form 10-K.

In this section, we summarize our segment results for the first quarter of 2015 and 2014 in the tables below and provide a comparative discussion of these results. This section should be read together with our comparative discussion of our condensed consolidated results of operations in “Consolidated Results of Operations.” See “Note 11, Segment Reporting” for a reconciliation of our segment results to our condensed consolidated results.

Single-Family Business Results

Table 11 displays the financial results of our Single-Family business for the periods indicated. For a discussion of Single-Family credit risk management, including information on serious delinquency rates and loan workouts, see “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management.” The primary source of revenue for our Single-Family business is guaranty fee income. Other items that impact income or loss primarily include credit-related (expense) income, TCCA fees and administrative expenses.

Table 11: Single-Family Business Results



	For the Three Months Ended March 31,
	2015				2014				Variance
	(Dollars in millions)
Guaranty fee income⁽¹⁾	$	3,040			$	2,870			$	170
Credit-related (expense) income⁽²⁾	(7		)		1,002				(1,009		)
TCCA fees⁽¹⁾	(382		)		(322		)		(60		)
Other expenses⁽³⁾	(539		)		(514		)		(25		)
Income before federal income taxes	2,112				3,036				(924		)
Provision for federal income taxes	(581		)		(927		)		346
Net income attributable to Fannie Mae	$	1,531			$	2,109			$	(578	)
Other key performance data:
Securitization Activity/New Business
Single-family Fannie Mae MBS issuances	$	110,994			$	76,972
Credit Guaranty Activity
Average single-family guaranty book of business⁽⁴⁾	$	2,845,125			$	2,884,653
Single-family effective guaranty fee rate (in basis points)⁽¹⁾⁽⁵⁾	42.7				39.8
Single-family average charged guaranty fee on new acquisitions (in basis points)⁽¹⁾⁽⁶⁾	61.2				63.0
Single-family serious delinquency rate, at end of period⁽⁷⁾	1.78			%	2.19			%
Market
Single-family mortgage debt outstanding, at end of period (total U.S. market)⁽⁸⁾	$	9,862,066			$	9,851,200
30-year mortgage rate, at end of period⁽⁹⁾	3.69			%	4.40			%

__________


⁽¹⁾	Includes the impact of a 10 basis point guaranty fee increase implemented pursuant to the TCCA, the incremental revenue from which must be remitted to Treasury. The resulting revenue is included in guaranty fee income and the expense is recognized as “TCCA fees.”


⁽²⁾	Consists of the benefit for credit losses and foreclosed property (expense) income.


⁽³⁾	Consists of net interest income (loss), investment gains (losses), net, fair value (losses) gains, net, (losses) gains from partnership investments, fee and other income (expense), administrative expenses and other (expenses) income.

⁽⁴⁾


⁽⁵⁾	Calculated based on annualized Single-Family segment guaranty fee income divided by the average single-family guaranty book of business, expressed in basis points.


⁽⁶⁾	Calculated based on the average contractual fee rate for our single-family guaranty arrangements entered into during the period plus the recognition of any upfront cash payments ratably over an estimated average life, expressed in basis points.


⁽⁷⁾	Calculated based on the number of single-family conventional loans that are 90 days or more past due or in the foreclosure process, divided by the number of loans in our single-family conventional guaranty book of business.


⁽⁸⁾	Information labeled as of March 31, 2015 is as of December 31, 2014 and is based on the Federal Reserve’s March 2015 mortgage debt outstanding release, the latest date for which the Federal Reserve has estimated mortgage debt outstanding for single-family residences. Prior period amounts may have been changed to reflect revised historical data from the Federal Reserve.


⁽⁹⁾	Based on Freddie Mac’s Primary Mortgage Market Survey^®rate for the last week in the period, which represents the national average mortgage commitment rate to a qualified borrower exclusive of any fees and points required by the lender.

Pre-tax income decreased in the first quarter of 2015 compared with the first quarter of 2014 primarily due to credit-related expense in the first quarter of 2015 compared with credit-related income in the first quarter of 2014.

We recognized single-family credit-related expense in the first quarter of 2015 compared with credit-related income in the first quarter of 2014 due to income recognized as a result of resolutions of representation and warranty matters in the first quarter of 2014. In addition, we incurred more expenses related to our foreclosed properties and recognized lower income from outstanding deferred payment obligations from mortgage insurers in the first quarter of 2015 compared with the first quarter of 2014. See “Consolidated Results of Operations—Credit-Related Income” for more information on the drivers of our credit-related income.

Guaranty fee income and our effective guaranty fee rate increased in the first quarter of 2015 compared with the first quarter of 2014 as loans with higher guaranty fees have become a larger part of our single-family guaranty book of business primarily due to the cumulative impact of guaranty fee price increases implemented in 2012.

TCCA fees increased in the first quarter of 2015 compared with the first quarter of 2014, as single-family loans acquired since the implementation of the TCCA-related guaranty fee increase constituted a larger portion of our single-family guaranty book of business in the first quarter of 2015.

Multifamily Business Results

Multifamily business results primarily reflect our multifamily guaranty business. Our multifamily business results also include activity relating to our low-income housing tax credit (“LIHTC”) investments and equity investments. Although we are not currently making new LIHTC or equity investments, we continue to make contractually required contributions for our legacy investments. Activity from multifamily products is also reflected in the Capital Markets group results, which include net interest income related to multifamily loans and securities held in our retained mortgage portfolio, gains and losses from the sale of multifamily Fannie Mae MBS, mortgage loans and re-securitizations, and other miscellaneous income.

Table 12 displays the financial results of our Multifamily business for the periods indicated. The primary sources of revenue for our Multifamily business are guaranty fee income and fee and other income, which includes yield maintenance income. Other items that affect income or loss primarily include credit-related income and administrative expenses.

Table 12: Multifamily Business Results



	For the Three Months Ended March 31,
	2015				2014				Variance
	(Dollars in millions)
Guaranty fee income	$	340			$	311			$	29
Fee and other income	51				24				27
Gains from partnership investments⁽¹⁾	212				45				167
Credit-related income⁽²⁾	67				34				33
Other expenses⁽³⁾	(117		)		(93		)		(24		)
Income before federal income taxes	553				321				232
(Provision) benefit for federal income taxes	(70		)		9				(79		)
Net income attributable to Fannie Mae	$	483			$	330			$	153
Other key performance data:
Securitization Activity/New Business
Multifamily new business volume⁽⁴⁾	$	10,364			$	3,520
Multifamily units financed from new business volume	134,000				72,000
Multifamily Fannie Mae MBS issuances⁽⁵⁾	$	11,418			$	4,879
Multifamily Fannie Mae structured securities issuances (issued by Capital Markets group)	$	3,434			$	3,262
Multifamily Fannie Mae MBS outstanding, at end of period⁽⁶⁾	$	173,507			$	150,693
Credit Guaranty Activity
Average multifamily guaranty book of business⁽⁷⁾	$	205,003			$	199,829
Multifamily effective guaranty fee rate (in basis points)⁽⁸⁾	66.3				62.3
Multifamily credit loss ratio (in basis points)⁽⁹⁾	0.6				1.2
Multifamily serious delinquency rate, at end of period	0.09			%	0.10			%
Percentage of multifamily guaranty book of business with credit enhancement, at end of period	93			%	91			%
Fannie Mae percentage of total multifamily mortgage debt outstanding, at end of period⁽¹⁰⁾	19			%	20			%
Portfolio Data
Average Fannie Mae multifamily mortgage loans and Fannie Mae MBS in Capital Markets group’s portfolio⁽¹¹⁾	$	39,801			$	56,655
Additional net interest income and yield maintenance income earned on Fannie Mae multifamily mortgage loans and MBS (included in Capital Markets group’s results)⁽¹²⁾	$	170			$	167

__________


⁽¹⁾	Gains from partnership investments are included in other expenses in our condensed consolidated statements of operations and comprehensive income. Gains from partnership investments are reported using the equity method of accounting. As a result, net income attributable to noncontrolling interest from partnership investments is not included in income for the Multifamily segment.


⁽²⁾	Consists of the benefit for credit losses and foreclosed property (expense) income.


⁽³⁾	Consists of net interest income (loss), investment gains (losses), net, administrative expenses and other (expenses) income.


⁽⁴⁾	Reflects unpaid principal balance of multifamily Fannie Mae MBS issued (excluding portfolio securitizations) and multifamily loans purchased during the period.


⁽⁵⁾	Reflects unpaid principal balance of multifamily Fannie Mae MBS issued during the period. Includes (a) issuances of new MBS and (b) Fannie Mae portfolio securitization transactions of $1.1 billion and $1.4 billion for the three months ended March 31, 2015 and 2014, respectively.


⁽⁶⁾	Includes $16.4 billion and $20.5 billion of Fannie Mae multifamily MBS held in the retained mortgage portfolio, the vast majority of which have been consolidated to loans in our condensed consolidated balance sheets, as of March 31, 2015 and 2014, respectively.


⁽⁷⁾	Our Multifamily guaranty book of business consists of (a) multifamily mortgage loans of Fannie Mae, (b) multifamily mortgage loans underlying Fannie Mae MBS, and (c) other credit enhancements that we provide on multifamily mortgage assets. It excludes non-Fannie Mae mortgage-related securities held in our retained mortgage portfolio for which we do not provide a guaranty.


⁽⁸⁾	Calculated based on annualized Multifamily segment guaranty fee income divided by the average multifamily guaranty book of business, expressed in basis points.


⁽⁹⁾	Calculated based on annualized Multifamily segment credit losses divided by the average multifamily guaranty book of business, expressed in basis points.

⁽¹⁰⁾

Includes mortgage loans and Fannie Mae MBS guaranteed by the Multifamily segment. Information labeled as of March 31, 2015 is as of December 31, 2014 and is based on the Federal Reserve’s March 2015 mortgage debt outstanding release, the latest date for which the Federal Reserve has estimated mortgage debt outstanding for multifamily residences. Prior period amounts may have been changed to reflect revised historical data from the Federal Reserve.


⁽¹¹⁾	Based on unpaid principal balance.

⁽¹²⁾

Interest expense estimate is based on allocated duration-matched funding costs. Net interest income was reduced by guaranty fees allocated to Multifamily from the Capital Markets group on multifamily loans in our retained mortgage portfolio. Yield maintenance income represents the investor portion of fees earned as a result of prepayments of multifamily loans and MBS in our retained mortgage portfolio. A portion of yield maintenance income is reported in multifamily business results to the extent attributable to our multifamily guaranty business.

Pre-tax income increased in the first quarter of 2015 compared with the first quarter of 2014 primarily due to an increase in gains on partnership investments, credit-related income and guaranty fee income.

Guaranty fee income increased in the first quarter of 2015 compared with the first quarter of 2014 as loans with higher guaranty fees have become a larger part of our multifamily guaranty book of business, while loans with lower guaranty fees continue to liquidate.

Credit-related income increased in the first quarter of 2015 compared with the first quarter of 2014 primarily driven by improvements in property valuations and loss severity trends.

Gains from partnership investments increased in the first quarter of 2015 compared with the first quarter of 2014 as a result of sales of investments in markets with strong multifamily fundamentals.

Capital Markets Group Results

Table 13 displays the financial results of our Capital Markets group for the periods indicated. Following the table we discuss the Capital Markets group’s financial results and describe the Capital Markets group’s retained mortgage portfolio. For a discussion of the debt issued by the Capital Markets group to fund its investment activities, see “Liquidity and Capital Management.” For a discussion of the derivative instruments that the Capital Markets group uses to manage interest rate risk, see “Risk Management—Market Risk Management, Including Interest Rate Risk Management—Measurement of Interest Rate Risk” in our 2014 Form 10-K and “Note 9, Derivative Instruments” in this report and our 2014 Form 10-K. The primary sources of revenue for our Capital Markets group are net interest income and fee and other income. Other items that impact income or loss primarily include fair value gains and losses, investment gains and losses, as well as allocated guaranty fee expense and administrative expenses.

Table 13: Capital Markets Group Results



	For the Three Months Ended March 31,
	2015			2014				Variance
	(Dollars in millions)
Net interest income⁽¹⁾	$	1,602			$	1,830			$	(228	)
Investment gains, net⁽²⁾	1,509				1,285				224
Fair value losses, net⁽³⁾	(1,970		)		(1,337		)		(633		)
Fee and other income	55				4,133				(4,078		)
Other expenses⁽⁴⁾	(378		)		(410		)		32
Income before federal income taxes	818				5,501				(4,683		)
Provision for federal income taxes	(219		)		(1,666		)		1,447
Net income attributable to Fannie Mae	$	599			$	3,835			$	(3,236	)

__________

⁽¹⁾

Includes contractual interest income, excluding recoveries, on nonaccrual loans received from the Single-Family segment of $559 million and $743 million for the three months ended March 31, 2015 and 2014, respectively. The Capital Markets group’s net interest income is reported based on the mortgage-related assets held in the segment’s retained mortgage portfolio and excludes interest income on mortgage-related assets held by consolidated MBS trusts that are owned by third parties and the interest expense on the corresponding debt of such trusts.


⁽²⁾	We include the securities that we own regardless of whether the trust has been consolidated in reporting of gains and losses on securitizations and sales of available-for-sale securities.


⁽³⁾	Includes fair value gains or losses on derivatives and trading securities that we own, regardless of whether the trust has been consolidated.


⁽⁴⁾	Includes allocated guaranty fee expense, debt extinguishment gains, net, administrative expenses, and other expenses. Gains or losses related to the extinguishment of debt issued by consolidated trusts are excluded from the Capital Markets group’s results because purchases of securities are recognized as such.

Pre-tax income decreased in the first quarter of 2015 compared with the first quarter of 2014 primarily due to lower fee and other income and net interest income, as well as higher fair value losses in the first quarter of 2015.

Fee and other income decreased in the first quarter of 2015 compared with the first quarter of 2014 due to revenue of $4.1 billion recognized in the first quarter of 2014 as a result of settlement agreements resolving certain lawsuits relating to PLS sold to us.

Investment gains increased in the first quarter of 2015 compared with the first quarter of 2014 primarily due to an increase in the amount of non-agency mortgage-related securities sold in the first quarter of 2015 compared with the amount of such securities that were sold in the first quarter of 2014.

Fair value losses in the first quarter of 2015 were primarily due to fair value losses on our risk management derivatives. The derivatives fair value losses that are reported for the Capital Markets group are consistent with the losses reported in our condensed consolidated statements of operations and comprehensive income. We discuss our derivatives fair value losses in “Consolidated Results of Operations—Fair Value Losses, Net.”

The decrease in net interest income in the first quarter of 2015 compared with the first quarter of 2014 was primarily due to a decline in the average balance of our retained mortgage portfolio as we continued to reduce this portfolio pursuant to the requirements of our senior preferred stock purchase agreement with Treasury and FHFA’s additional portfolio cap.

We supplement our issuance of debt securities with derivative instruments to further reduce interest rate risk. The effect of these derivatives, in particular the periodic net interest expense accruals on interest rate swaps, is not reflected in the Capital Markets group’s net interest income but is included in our results as a component of “Fair value losses, net” and is displayed in “Table 6: Fair Value Losses, Net.”

The Capital Markets Group’s Mortgage Portfolio

The Capital Markets group’s mortgage portfolio, which we also refer to as our retained mortgage portfolio, consists of mortgage loans and mortgage-related securities that we own. Mortgage-related securities held by the Capital Markets group include Fannie Mae MBS and non-Fannie Mae mortgage-related securities. The Fannie Mae MBS that we own are maintained as securities on the Capital Markets group’s balance sheets. The portion of assets held by consolidated MBS trusts

that back mortgage-related securities owned by third parties are not included in the Capital Markets group’s mortgage portfolio.

The amount of mortgage assets that we may own is restricted by our senior preferred stock purchase agreement with Treasury. By December 31 of each year, we are required to reduce our mortgage assets to 85% of the maximum allowable amount that we were permitted to own as of December 31 of the immediately preceding calendar year, until the amount of our mortgage assets reaches $250 billion in 2018. Under the agreement, the maximum allowable amount of mortgage assets we are permitted to own as of December 31, 2015 is $399.2 billion.

In 2014, FHFA requested that we submit a revised portfolio plan outlining how we will reduce the portfolio each year to 90% of the annual limit under our senior preferred stock purchase agreement with Treasury. FHFA’s request noted that we may seek FHFA permission to increase this cap to 95% of the annual limit under our senior preferred stock purchase agreement with Treasury upon written request and with a documented basis for exception, such as changed market conditions. Accordingly, under our revised portfolio plan, we plan to reduce our mortgage portfolio to no more than $359.3 billion as of December 31, 2015, in compliance with both our senior preferred stock purchase agreement with Treasury and FHFA’s request.

As we continue to reduce the size of our retained mortgage portfolio, our revenues generated by our retained mortgage portfolio will continue to decrease. As of March 31, 2015, we owned $411.7 billion in mortgage assets, compared with $413.3 billion as of December 31, 2014. For additional information on the terms of the senior preferred stock purchase agreement with Treasury, see “Business—Conservatorship and Treasury Agreements—Treasury Agreements” in our 2014 Form 10-K.

Table 14 displays our Capital Markets group’s mortgage portfolio activity based on unpaid principal balance.

Table 14: Capital Markets Group’s Mortgage Portfolio Activity



	For the Three Months
	Ended March 31,
	2015			2014
	(Dollars in millions)
Mortgage loans:
Beginning balance	$	285,610		$	314,664
Purchases	48,788			30,900
Securitizations⁽¹⁾	(42,757		)	(26,543		)
Liquidations and sales⁽²⁾	(10,239		)	(13,032		)
Mortgage loans, ending balance	281,402			305,989

Mortgage securities:
Beginning balance	127,703			176,037
Purchases⁽³⁾	8,690			3,530
Securitizations⁽¹⁾	42,757			26,543
Sales	(43,668		)	(37,242		)
Liquidations⁽²⁾	(5,200		)	(7,145		)
Mortgage securities, ending balance	130,282			161,723
Total Capital Markets group’s mortgage portfolio	$	411,684		$	467,712

__________


⁽¹⁾	Includes portfolio securitization transactions that do not qualify for sale treatment under GAAP.


⁽²⁾	Includes scheduled repayments, prepayments, foreclosures, and lender repurchases.


⁽³⁾	Includes purchases of Fannie Mae MBS issued by consolidated trusts.

Table 15 displays the composition of the unpaid principal balance of the Capital Markets group’s mortgage portfolio and our assessment of the liquidity of these assets. Our assessment is based on the liquidity within the markets in which the assets are traded, the issuers of the assets and the nature of the collateral underlying the assets. Our unsecuritized mortgage loans, PLS and other non-agency securities are considered less liquid. Fannie Mae securities that are collateralized by non-agency mortgage-related securities are also considered to be less liquid.

Table 15: Capital Markets Group’s Mortgage Portfolio Composition



	As of
	March 31, 2015							December 31, 2014
		More Liquid		Less Liquid		Total		More Liquid		Less Liquid		Total
	(Dollars in millions)
Mortgage loans:
Single-family loans:
Government insured or guaranteed		$	—	$	35,855	$	35,855	$	—	$	36,442	$	36,442
Conventional		—		224,697		224,697		—		225,800		225,800
Total single-family loans		—		260,552		260,552		—		262,242		262,242
Multifamily loans:
Government insured or guaranteed		—		240		240		—		243		243
Conventional		—		20,610		20,610		—