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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from      to         
Commission file number: 0-50231
Federal National Mortgage Association
(Exact name of registrant as specified in its charter)
Fannie Mae
Federally chartered corporation
52-0883107
1100 15th Street, NW


800232-6643
Washington,DC20005
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
(Address of principal executive offices, including zip code)(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: 
Title of each classTrading Symbol(s)Name of each exchange on which registered
NoneN/AN/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 
As of April 15, 2021, there were 1,158,087,567 shares of common stock of the registrant outstanding.



TABLE OF CONTENTS
Page
PART I—Financial Information
Item 1.
Item 2.
Summary of Our Financial Performance
Liquidity Provided in the First Quarter of 2021
Single-Family Mortgage Market
Single-Family Market Activity
Single-Family Business Metrics
Single-Family Business Financial Results
Single-Family Mortgage Credit Risk Management
Multifamily Mortgage Market
Multifamily Business Metrics
Multifamily Business Financial Results
Multifamily Mortgage Credit Risk Management
Institutional Counterparty Credit Risk Management
Market Risk Management, including Interest-Rate Risk Management
Fannie Mae First Quarter 2021 Form 10-Q
i


Item 3.
Item 4.
PART II—Other Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Fannie Mae First Quarter 2021 Form 10-Q
ii

MD&A | Introduction
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 provided for the exercise of certain authorities by our Board of Directors. 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 do not know when or how the conservatorship will terminate, what further changes to our business will be made during or following conservatorship, what form we will have and what ownership interest, if any, our current common and preferred stockholders will hold in us after the conservatorship is terminated or whether we will continue to exist following conservatorship. FHFA established 2021 performance objectives for us that included preparing for our eventual exit from conservatorship. Congress and the Administration continue to consider options for reform of the housing finance system, including Fannie Mae.
We are not currently permitted to pay dividends or other distributions to stockholders. Our agreements with the U.S. Department of the Treasury (“Treasury”) include a commitment from Treasury to provide us with funds to maintain a positive net worth under specified conditions; however, the U.S. government does not guarantee our securities or other obligations. Our agreements with Treasury also include covenants that significantly restrict our business activities. For additional information on the conservatorship, the uncertainty of our future, our agreements with Treasury, and recent developments relating to housing finance reform, see “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” and “Risk Factors” in our Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”).
You should read this MD&A in conjunction with our unaudited condensed consolidated financial statements and related notes in this report and the more detailed information in our 2020 Form 10-K. You can find a “Glossary of Terms Used in This Report” in our 2020 Form 10-K.
Forward-looking statements in this report are based on management’s current expectations and are subject to significant uncertainties and changes in circumstances, as we describe in “Forward-Looking Statements.” Future events and our future results may differ materially from those reflected in our forward-looking statements due to a variety of factors, including those discussed in “Risk Factors” and elsewhere in this report and in our 2020 Form 10-K.
Introduction
Fannie Mae is a leading source of financing for mortgages in the United States, with $4.1 trillion in assets as of March 31, 2021. Organized as a government-sponsored entity, Fannie Mae is a shareholder-owned corporation. Our charter is an act of Congress, and we have a mission under that charter to provide liquidity and stability to the residential mortgage market and to promote access to mortgage credit. We were initially established in 1938.
Our revenues are primarily driven by guaranty fees we receive for assuming the credit risk on loans underlying the mortgage-backed securities we issue. We do not originate loans or lend money directly to borrowers. Rather, we primarily work with lenders who originate loans to borrowers. We securitize those loans into Fannie Mae mortgage-backed securities that we guarantee (which we refer to as Fannie Mae MBS or our MBS).
Effectively managing credit risk is key to our business. In exchange for assuming credit risk on the loans we acquire, we receive guaranty fees. These fees take into account the credit risk characteristics of the loans we acquire and consist of two primary components:
Loan-level pricing adjustments, which are upfront fees received when we acquire single-family loans.
Base guaranty fees, which we receive monthly over the life of the loan.
Guaranty fees are set at the time we acquire loans and do not change over the life of the loan. How long a loan remains in our guaranty book is heavily dependent on interest rates. When interest rates decrease, a larger portion of our book of business turns over as more loans refinance. On the other hand, as interest rates increase, fewer loans refinance and our book turns over more slowly. Since guaranty fees are set at the time a loan is originated, the impact of any change in guaranty fees on future revenues is dependent on the rate at which newly originated loans replace the existing loans in our book of business.
Fannie Mae First Quarter 2021 Form 10-Q
1

MD&A | Executive Summary | Summary of Our Financial Performance
Executive Summary
Summary of Our Financial Performance
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Q1 2021 vs. Q1 2020
Net revenues increased $1.4 billion in the first quarter of 2021, compared with the first quarter of 2020, primarily due to an increase in net amortization income as a result of continued high prepayment volumes from loan refinancings in the first quarter of 2021 driven by the low interest-rate environment. High prepayments result in accelerated amortization of cost basis adjustments, including risk-based pricing adjustments and other upfront fees we received at the time of loan acquisition. We anticipate net revenues from prepayment activity will begin to slow in the second half of 2021, as we expect mortgage interest rates are likely to rise, resulting in fewer borrowers who can benefit from a refinancing. Lower levels of refinancing will likely slow the accelerated amortization of cost basis adjustments for loans in our book of business as loans remain outstanding for longer, and therefore will likely result in lower amortization income in any one period.
Net income increased $4.5 billion in the first quarter of 2021 compared with the first quarter of 2020, primarily driven by a shift from credit-related expense in the first quarter of 2020 to credit-related income in the first quarter of 2021. Credit-related expense in the first quarter of 2020 was driven by economic dislocation caused by the COVID-19 pandemic. Credit-related income in the first quarter of 2021 was driven by a benefit for credit losses primarily due to higher actual and forecasted home prices, partially offset by higher actual and projected interest rates. Additional drivers of increased net income include the increase in net revenues from higher net amortization income discussed above and a shift from fair value losses to gains in the first quarter of 2021 primarily driven by our implementation of hedge accounting in January 2021.
Net worth increased to $30.2 billion as of March 31, 2021 from $25.3 billion as of December 31, 2020. The increase is attributable to $5.0 billion of comprehensive income for the first quarter of 2021.
Long-term financial performance. Our long-term financial performance will depend on many factors, including:
the size of and our share of the U.S. mortgage market, which in turn will depend upon population growth, household formation and housing supply;
borrower performance, the guaranty fees we charge, and changes in macroeconomic factors, including home prices and interest rates; and
Fannie Mae First Quarter 2021 Form 10-Q
2

MD&A | Executive Summary | Summary of Our Financial Performance
actions by FHFA, the Administration and Congress relating to our business and housing finance reform, including our capital requirements, our ongoing financial obligations to Treasury, restrictions on our activities and our business footprint, our competitive environment, requirements to support borrowers or the mortgage market, and actions we take in light of these conditions.
We discuss recent measures to address the economic impact of COVID-19 in the American Rescue Plan Act of 2021 (the “American Rescue Plan”) that may impact us in “Legislation and Regulation” and recent economic conditions in “Key Market Economic Indicators” in this report.
Liquidity Provided in the First Quarter of 2021
Through our single-family and multifamily business segments, we provided $422 billion in liquidity to the mortgage market in the first quarter of 2021, including $211 billion through our whole loan conduit that primarily supports small- to medium-sized lenders, enabling the financing of approximately 1.7 million home purchases, refinancings or rental units.
Fannie Mae Provided $422 Billion in Liquidity in the First Quarter of 2021
Unpaid Principal BalanceUnits
$99B
340K
Single-Family Home Purchases
$301B
1.1M
Single-Family Refinancings
$22B
217K
Multifamily Rental Units

We continued our commitment to green financing in the first quarter of 2021, issuing a total of $6.4 billion in multifamily green MBS, $37.4 million in single-family green MBS and $715.4 million in multifamily green resecuritizations. We also issued $3.1 billion in multifamily social MBS and $314.8 million in multifamily social resecuritizations in the first quarter of 2021. These social bonds represent our first issuance of social bonds and were issued in alignment with our Sustainable Bond Framework, which guides our issuances of sustainable debt bonds and sustainable MBS that support housing affordability and green financing. For information about our green bonds and our Sustainable Bond Framework, see “Directors, Executive Officers and Corporate Governance—ESG Matters” in our 2020 Form 10-K.
Legislation and Regulation
The information in this section updates and supplements information regarding legislative, regulatory, conservatorship and other developments affecting our business set forth in “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” and “Business—Legislation and Regulation” in our 2020 Form 10-K. Also see “Risk Factors” in our 2020 Form 10-K for discussions of risks relating to legislative and regulatory matters.
American Rescue Plan
In March 2021, Congress enacted and the President signed the American Rescue Plan to address the economic dislocation and other burdens resulting from the COVID-19 pandemic. The act follows enactment of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in March 2020 and the Consolidated Appropriations Act of 2021 in December 2020. The American Rescue Plan contains many provisions designed to mitigate the negative economic impact of the COVID-19 pandemic, including direct cash payments to eligible taxpayers below specified income limits, extended unemployment insurance benefits, and additional relief designed to prevent layoffs and business closures at small businesses. It also includes emergency rental assistance, emergency housing vouchers and funds to assist struggling homeowners with mortgage payments, property taxes, property insurance, utilities and other housing-related costs. We expect the funding provided under the American Rescue Plan will improve the ability of some single-family and multifamily borrowers to make payments on their loans.
Proposed CFPB Rule Regarding Foreclosure
On April 5, 2021, the Consumer Financial Protection Bureau (the “CFPB”) issued a proposed rule that, if finalized, would generally prohibit servicers from initiating any new foreclosure on a mortgage loan secured by the borrower’s principal residence until after December 31, 2021. The CFPB is considering providing limited exceptions from this prohibition if the servicer has completed its loss mitigation review and determined the borrower is not eligible for any non-foreclosure
Fannie Mae First Quarter 2021 Form 10-Q
3

MD&A | Legislation and Regulation
option or if the borrower has been unresponsive to servicer outreach. The proposed effective date of the rule is August 31, 2021 and public comments are due May 10, 2021. Fannie Mae has already suspended foreclosures and certain foreclosure-related activities for single-family properties, other than for vacant or abandoned properties, through at least June 30, 2021. If the period before foreclosures can be initiated is extended, it may impact the timing of when we realize credit losses from foreclosures and foreclosure-related activities. It could also increase our expected credit loss reserves, which could adversely affect our credit-related expenses.
Federal Eviction Moratorium
In March 2021, the Centers for Disease Control and Prevention (the “CDC”) extended through June 30, 2021 its order prohibiting the eviction of any tenant, lessee or resident of a residential property for nonpayment of rent, if such person provides a specified declaration attesting that they meet the requirements to obtain the protection of the order. The requirements to obtain the protection of the order include a specified income cap and an inability to pay full rent. Challenges to the CDC’s eviction moratorium order have been brought in a number of jurisdictions, and the validity of the CDC’s order remains subject to further litigation. While the CDC order does not impose any obligations on Fannie Mae or its servicers to ensure compliance by borrowers, a borrower’s income may be impacted by tenants who do not pay their rent while under the protection of the CDC order. As a result and as described in “Risk Factors” in our 2020 Form 10-K, these eviction moratoriums could adversely affect the ability of some of our borrowers to make payments on their loans.
New Refinance Option
On April 28, 2021, FHFA announced that it is directing Fannie Mae and Freddie Mac to implement a new refinance option targeting low-income borrowers with single-family mortgages backed by Fannie Mae and Freddie Mac. The initiative is intended to encourage eligible borrowers to take advantage of the current low interest-rate environment to refinance and lower both their interest rates and their monthly mortgage payments.
2020 Housing Goals Performance
We are subject to housing goals, which establish specified requirements for our mortgage acquisitions relating to affordability or location. We believe we met all of our single-family and multifamily housing goals for 2020. Final performance results will be determined and published by FHFA sometime after the release later this year of 2020 data reported by primary mortgage market originators under the Home Mortgage Disclosure Act. For more information on our housing goals, see “Business—Legislation and Regulation—GSE Act and Other Legislative and Regulatory Matters—Housing Goals” in our 2020 Form 10-K.
The Qualified Mortgage Patch
In December 2020, the CFPB published a final rule that eliminates the qualified mortgage patch and replaces the 43% debt-to-income (“DTI”) ratio limit and certain other requirements for a standard qualified mortgage with a pricing and underwriting framework. The final qualified mortgage rule went into effect in March 2021, with lenders required to comply beginning in July 2021. In April 2021, the CFPB published a final rule extending the mandatory compliance date to October 2022 and thereby also extending the qualified mortgage patch. The CFPB has indicated that it will consider changes to the final rule during the extended implementation timeframe. Although the rule’s implementation is delayed, the terms of our senior preferred stock purchase agreement with Treasury require that after July 2021 most single-family loans we purchase be qualified mortgages under the terms of the final rule that went into effect in March 2021. We do not expect the final qualified mortgage rule, as published, to impact our business significantly, but it may increase competition. See “Risk Factors—GSE and Conservatorship Risk” and “Risk Factors—Legal and Regulatory Risk” in our 2020 Form 10-K for more information on risks presented by regulatory changes in the financial services industry.
Fannie Mae First Quarter 2021 Form 10-Q
4

MD&A | Key Market Economic Indicators
Key Market Economic Indicators
Below we discuss how varying macroeconomic conditions can influence our financial results across different business and economic environments.
The COVID-19 pandemic has had a significant adverse effect on both the U.S. and global economies. Our forecasts and expectations are subject to many uncertainties, including the impact of the COVID-19 pandemic, and may change, perhaps substantially, from our current expectations.
Selected Benchmark Interest Rates
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(1)According to Bloomberg.
(2)Refers to the U.S. weekly average fixed-rate mortgage rate according to Freddie Mac's Primary Mortgage Market Survey®. These rates are reported using the latest available data for a given period.
How interest rates can affect our financial results
Net interest income. In a rising interest-rate environment, our mortgage loans tend to prepay more slowly. We amortize various cost basis adjustments over the life of the mortgage loan, including those relating to loan-level pricing adjustments we receive as upfront fees at the time we acquire single-family loans. As a result, any prepayment of a loan results in an accelerated realization of those upfront fees as income. Therefore, as loan prepayments slow, the accelerated realization of amortization income also slows. Conversely, in a declining interest-rate environment, our mortgage loans tend to prepay faster, typically resulting in the opposite trends of higher net amortization income from cost basis adjustments on mortgage loans and related debt.
Fair value gains (losses). We have exposure to fair value gains and losses resulting from changes in interest rates, primarily through our mortgage commitment derivatives and risk management derivatives, which we mark to market through earnings. Fair value gains and losses on our mortgage commitment derivatives fluctuate depending on how interest rates and prices move between the time the commitment is opened and settled. The net position and composition across the yield curve of our risk management derivatives changes over time. As a result, interest rate changes (increases or decreases) and yield curve changes (parallel, steepening or flattening shifts) will generate varying amounts of fair value gains or losses in a given period.
Credit-related income (expense). Increases in mortgage interest rates tend to lengthen the expected lives of our loans, which generally increases the expected impairment and provision for credit losses on such loans. Decreases in mortgage interest rates tend to shorten the expected lives of our loans, which reduces the impairment and provision for credit losses on such loans.
Fannie Mae First Quarter 2021 Form 10-Q
5

MD&A | Key Market Economic Indicators
In January 2021, we began applying fair value hedge accounting to reduce the impact of changes in interest rates, or the interest-rate effect, on our financial results. For additional information on how hedge accounting supports our interest-rate risk management strategy and our fair value hedge accounting policy, see “Consolidated Results of Operations—Hedge Accounting Impact,” “Risk Management—Market Risk Management, including Interest-Rate Risk Management—Earnings Exposure to Interest-Rate Risk” and “Note 1, Summary of Significant Accounting Policies.”
Single-Family Quarterly Home Price Growth Rate(1)
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(1)Calculated internally using property data on loans purchased by Fannie Mae, Freddie Mac and other third-party home sales data. Fannie Mae’s home price index is a weighted repeat transactions index, measuring average price changes in repeat sales on the same properties. Fannie Mae’s home price index excludes prices on properties sold in foreclosure. Fannie Mae’s home price estimates are based on preliminary data and are subject to change as additional data becomes available.
Home prices and how they can affect our financial results
Actual and forecasted home prices impact our provision or benefit for credit losses.
Changes in home prices affect the amount of equity that borrowers have in their homes. Borrowers with less equity typically have higher delinquency and default rates.
As home prices increase, the severity of losses we incur on defaulted loans that we hold or guarantee decreases because the amount we can recover from the properties securing the loans increases. Declines in home prices increase the losses we incur on defaulted loans.
Home prices also impact the growth and size of our guaranty book of business. As home prices rise, the principal balance of loans associated with purchase-money mortgages may increase, which affects the size of our book. Additionally, rising home prices can increase the amount of equity borrowers have in their home, which may lead to an increase in origination volumes for cash-out refinance loans with higher principal balances than the existing loan. Replacing existing loans with newly acquired cash-out refinances can affect the growth and size of our book.
Home price growth in the first quarter of 2021 was unseasonably strong, driven by continued low interest rates and low levels of housing supply relative to the level of demand.
We currently expect home price growth on a national basis in 2021 of 8.8%, which is a significant increase compared with our prior forecast but lower than the exceptionally strong home price growth of 10.6% in 2020. However, a higher-than-expected supply of homes available for sale or weaker-than-expected demand could lead to slower growth in home prices. We also expect significant regional variation in the timing and rate of home price growth.
Our forecasts and expectations are subject to many uncertainties and may change, perhaps substantially, from our current forecasts and expectations, including any continued impact from the COVID-19 pandemic. For example, home price growth could slow if GDP growth is weaker than we currently expect, if unemployment, particularly among existing homeowners and potential new home buyers, is higher than we expect, or if the housing market is more sensitive to economic and labor-market weaknesses than we expect. For further discussion on housing activity, see “Single-Family Business—Single-Family Mortgage Market” and “Multifamily Business—Multifamily Mortgage Market.”
Fannie Mae First Quarter 2021 Form 10-Q
6

MD&A | Key Market Economic Indicators
New Housing Starts(1)
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(1)According to U.S. Census Bureau and subject to revision. New housing starts for the first quarter of 2021 are based on Fannie Mae’s forecast.
How housing activity can affect our financial results
Two key aspects of economic activity that can impact supply and demand for housing and thus mortgage lending are the rates of household formation and housing construction.
Household formation is a key driver of demand for both single-family and multifamily housing. A newly formed household will either rent or purchase a home. Thus, changes in the pace of household formation can affect prices and credit performance as well as the degree of loss on defaulted loans.
Growth of household formation stimulates homebuilding. Homebuilding has typically been a cyclical leader, weakening prior to a slowdown in U.S. economic activity and accelerating prior to a recovery, which contributes to the growth of GDP and employment. However, the housing sector’s performance may vary from its historical precedent due to the many uncertainties surrounding future economic or housing policy as well as the continued impact of the COVID-19 pandemic on the economy and the housing market.
With regard to housing construction, a decline in housing starts results in fewer new homes being available for purchase and potentially a lower volume of mortgage originations. Construction activity can also affect credit losses through its impact on home prices. If the growth of demand exceeds the growth of supply, prices will appreciate and impact the risk profile of newly originated home purchase mortgages, depending on where in the housing cycle the market is. A reduced pace of construction is often associated with a broader economic slowdown and may signal expected increases in delinquency and losses on defaulted loans.
Home sales fell in the first quarter of 2021, declining from the high pace seen at the end of 2020. We expect a continued lack of new and existing homes available for sale will likely continue to constrain sales into the second quarter.
Strong pricing, given both the current strength in demand and low supply of existing and new homes available for sale, should support construction and we expect single-family housing starts in 2021 to exceed 2020 levels by 23.8%. We also expect housing activity to remain strong throughout 2021.
Construction demand in the multifamily sector strengthened at the beginning of 2021, with multifamily starts posting a solid increase in the first quarter. We expect a modest pullback in the second quarter before multifamily starts remain mostly flat for the second half of 2021; we project multifamily starts to edge up about 1.0% on an annual basis in 2021.
Fannie Mae First Quarter 2021 Form 10-Q
7

MD&A | Key Market Economic Indicators
GDP, Unemployment Rate and Personal Consumption
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(1)GDP growth (decline) and personal consumption growth (decline) are based on the quarterly series calculated by the Bureau of Economic Analysis and are subject to revision.
(2)According to the U.S. Bureau of Labor Statistics and subject to revision.
How GDP, the unemployment rate and personal consumption can affect our financial results
Changes in GDP, the unemployment rate and personal consumption can affect several mortgage market factors, including the demand for both single-family and multifamily housing and the level of loan delinquencies, which in turn can lead to credit losses.
Economic growth is a key factor for the performance of mortgage-related assets. In a growing economy, employment and income are rising, thus allowing existing borrowers to meet payment requirements, existing homeowners to consider purchasing and moving to another home, and renters to consider becoming homeowners. Homebuilding typically increases to meet the rise in demand. Mortgage delinquencies typically fall in an expanding economy, thereby decreasing credit losses.
In a slowing economy, employment and income growth slow and housing activity slows as an early indicator of reduced economic activity. Typically, as an economic slowdown intensifies, households reduce their spending. This reduction in consumption then accelerates the slowdown. An economic slowdown can lead to employment losses, impairing the ability of borrowers and renters to meet mortgage and rental payments, thus causing loan delinquencies to rise. Home sales and mortgage originations also typically fall in a slowing economy.
The economic recovery from the impact of the COVID-19 pandemic began in the second half of 2020 and continued its momentum in the first quarter of 2021 as additional government stimulus measures were passed with the American Rescue Plan, vaccination rates increased, and many lockdown measures began to be lifted. This led to strong consumer spending and GDP growth. The pace and strength of economic recovery remains uncertain and will depend on a number of factors, including consumers’ eagerness to return to previously restricted activities, recovery of economic activity outside the U.S., global supply chain disruptions, the path of the COVID-19 pandemic, and the potential for higher inflation.
See “Risk Factors—Market and Industry Risk” in this report and in our 2020 Form 10-K for further discussion of risks to our business and financial results associated with interest rates, home prices, housing activity and economic conditions.
Fannie Mae First Quarter 2021 Form 10-Q
8

MD&A | Consolidated Results of Operations
Consolidated Results of Operations
This section discusses our condensed consolidated results of operations and should be read together with our condensed consolidated financial statements and the accompanying notes.
Summary of Condensed Consolidated Results of Operations
For the Three Months Ended March 31,
20212020Variance
(Dollars in millions)
Net interest income(1)
$6,742 $5,347 $1,395 
Fee and other income87 120 (33)
Net revenues6,829 5,467 1,362 
Investment gains (losses), net45 (158)203 
Fair value gains (losses), net(1)
784 (276)1,060 
Administrative expenses(748)(749)
Credit-related income (expenses):
Benefit (provision) for credit losses765 (2,583)3,348 
Foreclosed property income (expense)5 (80)85 
Total credit-related income (expenses)770 (2,663)3,433 
TCCA fees
(731)(637)(94)
Credit enhancement expense(2)
(284)(376)92 
Change in expected credit enhancement recoveries(3)
(31)188 (219)
Other expenses, net(4)
(319)(218)(101)
Income before federal income taxes6,315 578 5,737 
Provision for federal income taxes(1,322)(117)(1,205)
Net income$4,993 $461 $4,532 
Total comprehensive income$4,966 $476 $4,490 
(1)In January 2021, we began applying fair value hedge accounting. For qualifying hedging relationships, fair value changes attributable to movements in the designated benchmark interest rates for hedged mortgage loans and funding debt and the fair value change of the designated portion of the paired interest-rate swaps are recognized in “Net interest income.” In prior years, all fair value changes for interest-rate swaps were recognized in “Fair value gains (losses), net.” See “Hedge Accounting Impact” below and “Note 1, Summary of Significant Accounting Policies” for more information about our hedge accounting program.
(2)Consists of costs associated with our freestanding credit enhancements, which primarily include our Connecticut Avenue Securities® (“CAS”) and Credit Insurance Risk TransferTM (“CIRTTM”) programs, enterprise-paid mortgage insurance (“EPMI”), and certain lender risk-sharing programs.
(3)Consists of change in benefits recognized from our freestanding credit enhancements, including any realized amounts.
(4)Consists of debt extinguishment gains and losses, housing trust fund expenses, loan subservicing costs, servicer fees paid in connection with certain loss mitigation activities, and gains and losses from partnership investments.
Hedge Accounting Impact
Our earnings can experience volatility due to interest-rate changes and differing accounting treatments that apply to certain financial instruments on our balance sheet. Specifically, we have exposure to earnings volatility that is driven by changes in interest rates in two primary areas: our net portfolio and our consolidated MBS trusts. The exposure in the net portfolio is primarily driven by changes in the fair value of risk management derivatives, mortgage commitments, and certain assets, primarily securities, that are carried at fair value. The exposure related to our consolidated MBS trusts primarily relates to changes in our credit loss reserves driven by changes in interest rates.
To help address this volatility, we began applying fair value hedge accounting in January 2021 to reduce the current-period impact on our earnings related to changes in interest rates, particularly the London Inter-bank Offered Rate (“LIBOR”) and the Secured Overnight Financing Rate (“SOFR”). Hedge accounting aligns the timing of when we recognize fair value changes in hedged items attributable to these benchmark interest-rate movements with fair value changes in the hedging instrument.
Fannie Mae First Quarter 2021 Form 10-Q
9

MD&A | Consolidated Results of Operations
Under our hedge accounting program, we establish fair value hedging relationships between risk management derivatives, specifically interest-rate swaps, and qualifying portfolios of mortgage loans or funding debt. For hedging relationships that are highly effective, we recognize changes in the fair value of the hedged mortgage loans or funding debt attributable to movements in the benchmark interest rate in net interest income. We then offset that impact with the changes in fair value of the designated interest-rate swap. This has the effect of deferring the recognition of gains and losses on the hedging instrument to future periods by recognizing the offsetting gain or loss on the hedged item as a cost basis adjustment on the underlying loans or funding debt at the end of the hedge term. The cost basis adjustment is then subsequently amortized back into earnings. Accordingly, for the first quarter of 2021 we deferred $1.2 billion in fair value losses as cost basis adjustments on our hedged loans and funding debt that will be amortized through “Net interest income” over the contractual life of the respective hedged items.
Although hedge accounting reduces the earnings volatility related to benchmark interest rate movements in any given period, it does not impact the amount of interest-rate-driven gains or losses we will ultimately recognize through earnings.
While we expect the earnings volatility related to benchmark interest rate movements to be meaningfully reduced as a result of our adoption of hedge accounting, earnings variability driven by other factors, such as spreads, remains. In addition, hedge accounting is not designed to address earnings volatility driven by changes in cost basis amortization recognized in net interest income, which can be influenced by interest rate changes.
See “Note 1, Summary of Significant Accounting Policies” and “Note 8, Derivative Instruments” for additional discussion of our fair value hedge accounting policy and related disclosures.
Net Interest Income
Our primary source of net interest income is guaranty fees we receive for managing the credit risk on loans underlying Fannie Mae MBS held by third parties.
Guaranty fees consist of two primary components:
base guaranty fees that we receive over the life of the loan; and
upfront fees that we receive at the time of loan acquisition primarily related to single-family loan-level pricing adjustments and other fees we receive from lenders, which are amortized into net interest income as cost basis adjustments over the contractual life of the loan. We refer to this as amortization income.
We recognize almost all of our guaranty fee revenue in net interest income because we consolidate the substantial majority of loans underlying our Fannie Mae MBS in consolidated trusts in our condensed consolidated balance sheets. Guaranty fees from these loans overwhelmingly account for the difference between the interest income on loans in consolidated trusts and the interest expense on the debt of consolidated trusts.
The timing of when we recognize amortization income can vary based on a number of factors, the most significant of which is a change in mortgage interest rates. In a rising interest-rate environment, our mortgage loans tend to prepay more slowly, which typically results in lower net amortization income. Conversely, in a declining interest-rate environment, our mortgage loans tend to prepay faster, typically resulting in higher net amortization income.
We also recognize net interest income on the difference between interest income earned on the assets in our retained mortgage portfolio and our other investments portfolio (collectively, our “portfolios”) and the interest expense associated with the debt that funds those assets. See “Retained Mortgage Portfolio” and “Liquidity and Capital Management—Liquidity Management—Other Investments Portfolio” for more information about our portfolios.
As discussed above, beginning in January 2021, we recognize fair value changes attributable to movements in benchmark interest rates for hedged mortgage loans and funding debt and total fair value changes for designated interest-rate swaps, as well as the amortization of hedge-related basis adjustments on the associated mortgage loans or funding debt and any related interest accrual on the swap, as a component of net interest income. The income or expense associated with this activity is presented in the hedge accounting line item in the table below.
Fannie Mae First Quarter 2021 Form 10-Q
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MD&A | Consolidated Results of Operations
The table below displays the components of our net interest income from our guaranty book of business, which we discuss in “Guaranty Book of Business,” and from our portfolios, as well as from hedge accounting.
Components of Net Interest Income
For the Three Months Ended March 31,
20212020Variance
(Dollars in millions)
Net interest income from guaranty book of business:
Base guaranty fee income(1)
$3,197 $2,600 $597 
Base guaranty fee income related to TCCA(2)
731 637 94 
Net amortization income(3)
2,526 1,506 1,020 
Total net interest income from guaranty book of business
6,454 4,743 1,711 
Net interest income from portfolios266 604 (338)
Income from hedge accounting(4)
22 — 22 
Total net interest income
$6,742 $5,347 $1,395 
(1)Excludes revenues generated by the 10 basis point guaranty fee increase we implemented pursuant to the TCCA which is remitted to Treasury and not retained by us.
(2)Represents revenues generated by the 10 basis point guaranty fee increase we implemented pursuant to the TCCA, the incremental revenue from which is remitted to Treasury and not retained by us. See “Note 1, Summary of Significant Accounting Policies” for more information on guidance we received from FHFA regarding TCCA fee amounts that we are not required to accrue or remit to Treasury with respect to delinquent loans backing MBS trusts.
(3)Net amortization income refers to the amortization of premiums and discounts on mortgage loans and debt of consolidated trusts. These cost basis adjustments represent the difference between the initial fair value and the carrying value of these instruments as well upfront fees we receive at the time of loan acquisition. It does not include the amortization of cost basis adjustments resulting from hedge accounting, which is included in income from hedge accounting.
(4)For the first quarter of 2021, income from hedge accounting includes contractual interest accruals and fair value losses for designated interest-rate swaps of $1,124 million offset by $1,146 million of gains from hedged mortgage loans and funding debt, net of $13 million in hedge-related amortization expense.
Net interest income increased in the first quarter of 2021 compared with the first quarter of 2020, driven by higher net amortization income and higher base guaranty fee income, partially offset by lower income from portfolios.
Higher net amortization income. A continued low interest-rate environment in the first quarter of 2021 led to elevated prepayment volumes as loans refinanced, which accelerated the amortization of cost basis adjustments, including upfront fees we recognize over the contractual life of the loans, on mortgage loans of consolidated trusts and the related debt.
Higher base guaranty fee income. An increase in the size of our guaranty book of business was the primary driver of the increase in base guaranty fee income in the first quarter of 2021.
Lower income from portfolios. Lower yields in the first quarter of 2021 on mortgage loans and assets in our other investments portfolio, partially offset by a decrease in interest expense on our funding debt due to a decrease in average borrowing costs, contributed to a decline in income from portfolios in the first quarter of 2021. We discuss the impact of COVID-19 on our funding needs and funding activity in “Liquidity and Capital Management—Liquidity Management—Debt Funding.”
Though mortgage rates modestly increased over the first quarter of 2021, we continued to be in a historically low interest-rate environment, contributing to continued mortgage refinance activity and high levels of amortization income. Because a large portion of our book of business has been and is expected to be originated in this historically low interest-rate environment, we anticipate that refinancing activity will begin to slow in the second half of 2021 as fewer borrowers can benefit from a refinancing as we expect interest rates will likely rise. Lower levels of refinancing in the future will likely slow the rate at which we amortize cost basis adjustments and therefore will likely result in lower amortization income in any one period as the average life of our outstanding book of business may extend as our book of business turns over more slowly. In addition, a slower turnover rate would limit the impact that changes in our guaranty fees have on our future revenues as any changes would take longer to meaningfully impact the average charged guaranty fee on our total book of business.
For loans negatively impacted by the COVID-19 pandemic, we continue to recognize interest income for up to six months of delinquency provided that the loans were either current at March 1, 2020 or originated after March 1, 2020, and collection of principal and interest is reasonably assured. For those loans where we have provided relief beyond six
Fannie Mae First Quarter 2021 Form 10-Q
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MD&A | Consolidated Results of Operations
months of delinquency, we continue to accrue interest income provided that the loan remains in a forbearance arrangement and collection of principal and interest continues to be reasonably assured. This resulted in a large portion of delinquent loans, including those in a forbearance arrangement, remaining on accrual status as of March 31, 2021. See “Note 3, Mortgage Loans” for more information about our nonaccrual accounting policy and “Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Problem Loan Management” and “Multifamily Business—Multifamily Mortgage Credit Risk Management—Multifamily Problem Loan Management and Foreclosure Prevention” for details about loans in forbearance, as well as on-balance sheet loans past due 90 days or more and continuing to accrue interest.
Analysis of Net Interest Income
The table below displays an analysis of our net interest income, average balances, and related yields earned on assets and incurred on liabilities. For most components of the average balances, we use a daily weighted average of unpaid principal balance net of unamortized cost basis adjustments. When daily average balance information is not available, such as for mortgage loans, we use monthly averages. For the first quarter of 2021, net interest income was impacted by the application of fair value hedge accounting beginning in January 2021.
Analysis of Net Interest Income and Yield(1)
For the Three Months Ended March 31,
20212020
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(2)
$109,537 $825 3.01 %$101,765 $1,016 3.99 %
Mortgage loans of consolidated trusts(2)
3,600,116 22,528 2.50 3,259,557 27,922 3.43 
Total mortgage loans(3)
3,709,653 23,353 2.52 3,361,322 28,938 3.44 
Mortgage-related securities
7,403 42 2.27 10,875 99 3.64 
Non-mortgage-related securities(4)
164,404 117 0.28 64,806 248 1.51 
Federal funds sold and securities purchased under agreements to resell or similar arrangements
60,103 8 0.05 29,335 107 1.44 
Advances to lenders
10,965 42 1.53 6,416 34 2.10 
Total interest-earning assets
$3,952,528 23,562 2.38 %$3,472,754 29,426 3.39 %
Interest-bearing liabilities:
Short-term funding debt
$9,779 (3)0.12 %$31,842 (102)1.27 %
Long-term funding debt(2)
259,737 (760)1.17 135,415 (787)2.32 
Connecticut Avenue Securities® (“CAS”) debt
14,804 (153)4.13 20,536 (289)5.63 
Total debt of Fannie Mae
284,320 (916)1.29 187,793 (1,178)2.51 
Debt securities of consolidated trusts held by third parties
3,643,848 (15,904)1.75 3,281,716 (22,901)2.79 
Total interest-bearing liabilities
$3,928,168 (16,820)1.71 %$3,469,509 (24,079)2.78 %
Net interest income/net interest yield
$6,742 0.68 %$5,347 0.62 %
(1)Includes the effects of discounts, premiums and other cost basis adjustments. For the first quarter of 2021, includes cost basis adjustments related to hedge accounting.
(2)Includes income of $22 million from hedged funding debt, hedged mortgage loans and paired interest-rate swaps for the first quarter of 2021. Substantially all of this amount is related to the hedged funding debt and paired interest-rate swaps. There was no income or expense from hedge accounting for the first quarter of 2020.
(3)Average balance includes mortgage loans on nonaccrual status. For nonaccrual mortgage loans not subject to the COVID-19-related nonaccrual guidance, interest income is recognized when cash is received. Interest income from the amortization of loan fees, primarily consisting of upfront cash fees and yield maintenance fees, was $2.5 billion and $1.6 billion for the first quarter of 2021 and 2020, respectively.
Fannie Mae First Quarter 2021 Form 10-Q
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MD&A | Consolidated Results of Operations
(4)Consists of cash, cash equivalents and U.S. Treasury securities.
Analysis of Deferred Amortization Income
We initially recognize mortgage loans and debt of consolidated trusts in our condensed consolidated balance sheets at fair value. The difference between the initial fair value and the carrying value of these instruments is recorded as a cost basis adjustment, either as a premium or a discount, in our condensed consolidated balance sheets. We amortize these cost basis adjustments over the contractual lives of the loans or debt. On a net basis, for mortgage loans and debt of consolidated trusts, we are in a premium position with respect to debt of consolidated trusts, which represents deferred income we will recognize in our condensed consolidated statements of operations and comprehensive income as net interest income in future periods.
Deferred Income Represented by Net Premium Position
on Debt of Consolidated Trusts
(Dollars in billions)
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Fair Value Gains (Losses), Net
The estimated fair value of our derivatives, trading securities and other financial instruments carried at fair value may fluctuate substantially from period to period because of changes in interest rates, the yield curve, mortgage and credit spreads and implied volatility, as well as activity related to these financial instruments.
As discussed above in “Hedge Accounting Impact,” we began applying fair value hedge accounting in January 2021 to reduce earnings volatility in our financial statements driven by changes in interest rates. Accordingly, we now recognize the fair value gains and losses and the contractual interest income and expense associated with risk management derivatives in qualifying hedging relationships in net interest income. Prior to the implementation of our hedge accounting program, these fair value changes were included in fair value gains (losses), net. Derivatives not designated in hedging relationships are unaffected by this change.
The table below displays the components of our fair value gains and losses.
Fair Value Gains (Losses), Net
For the Three Months Ended March 31,
20212020
(Dollars in millions)
Risk management derivatives fair value gains (losses) attributable to:
Net contractual interest income (expense) on interest-rate swaps$43 $(106)
Net change in fair value during the period(1,011)(255)
Impact on risk management derivatives fair value losses, net due to the reclassification of hedged amounts to net interest income(1)
1,124 — 
Risk management derivatives fair value gains (losses), net156 (361)
Mortgage commitment derivatives fair value gains (losses), net
1,082 (993)
Credit enhancement derivatives fair value losses, net
(90)(11)
Total derivatives fair value gains (losses), net
1,148 (1,365)
Trading securities gains (losses), net
(758)647 
CAS debt fair value gains (losses), net
(1)637 
Other, net(2)
395 (195)
Fair value gains (losses), net$784 $(276)
(1)Consists of the reclassification of $1,178 million in fair value losses and $54 million of contractual interest income for designated interest-rate swaps as a result of fair value hedge accounting.
Fannie Mae First Quarter 2021 Form 10-Q
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MD&A | Consolidated Results of Operations
(2)Consists of fair value gains and losses on non-CAS debt and mortgage loans held at fair value.
Fair value gains in the first quarter of 2021 were primarily driven by:
the application of hedge accounting resulting in a reclassification of fair value losses on designated interest-rate swaps to “net interest income;”
increases in the fair value of mortgage commitment derivatives due to gains on commitments to sell mortgage-related securities as prices decreased during the commitment period as interest rates increased; and
decreases in the fair value of long-term debt of consolidated trusts held at fair value, which are included in “Other, net,” due to increases in interest rates.
These gains were partially offset by losses on trading securities due to increases in U.S. Treasury yields during the period, which resulted in losses on fixed-rate securities held in our other investments portfolio.
Fair value losses in the first quarter of 2020 were primarily driven by:
decreases in the fair value of mortgage commitment derivatives due to losses on commitments to sell mortgage-related securities as prices increased during the commitment period as interest rates declined, which were partially offset by gains on commitments to buy mortgage-related securities;
net interest expense on risk management derivatives combined with decreases in the fair value of pay-fixed risk management derivatives due to declines in medium- to longer-term swap rates, which were partially offset by increases in the fair value of receive-fixed risk management derivatives; and
increases in the fair value of long-term debt of consolidated trusts held at fair value, which are included in “Other, net,” due to declines in interest rates.
These losses were partially offset by fair value gains in the first quarter of 2020 on trading securities and CAS debt, primarily driven by declines in interest rates and widened spreads between CAS debt yields and LIBOR, which resulted in gains on fixed-rate securities held in our other investments portfolio and our CAS debt held at fair value.
Credit-Related Income (Expense)
Our credit-related income or expense can vary substantially from period to period based on a number of factors, such as changes in actual and forecasted home prices or property valuations, fluctuations in actual and forecasted interest rates, borrower payment behavior, events such as natural disasters or pandemics, the types and volume of our loss mitigation activities, including forbearances and loan modifications, the volume of foreclosures completed and the redesignation of loans from held for investment (“HFI”) to held for sale (“HFS”).
Our credit-related income or expense and our loss reserves can also be impacted by updates to the models, assumptions and data used in determining our allowance for loan losses. As described below, since the onset of the COVID-19 pandemic in early 2020, our credit-related income or expense and our loss reserves have been significantly affected by our estimates of the impact of the COVID-19 pandemic, which require significant management judgment. Changes in our expectations regarding the length of time borrowers remain in forbearance, and even more significantly, the loss mitigation outcomes of affected borrowers after the forbearance period ends, remain uncertain and can affect the amount of credit-related income or expense we recognize. Although we believe the estimates underlying our allowance are reasonable, we may observe future volatility in these estimates as we continue to observe actual loan performance data and update our models and assumptions relating to this unprecedented event.
Fannie Mae First Quarter 2021 Form 10-Q
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MD&A | Consolidated Results of Operations
Benefit (Provision) for Credit Losses
The table below provides a quantitative analysis of the drivers of our single-family and multifamily benefit or provision for credit losses and the change in expected credit enhancement recoveries. The benefit or provision for credit losses includes our benefit or provision for loan losses, accrued interest receivable losses and our guaranty loss reserves, and excludes credit losses on our available-for-sale (“AFS”) securities. It also excludes the transition impact of adopting Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses, Measurement of Credit Losses on Financial Instruments, (the “CECL standard”), which was recorded as an adjustment to retained earnings as of January 1, 2020. Many of the drivers that contribute to our benefit or provision for credit losses overlap or are interdependent. The attribution shown below is based on internal allocation estimates.
Components of Benefit (Provision) for Credit Losses and Change in Expected Credit Enhancement Recoveries
For the Three Months Ended March 31,
20212020
(Dollars in millions)
Single-family benefit (provision) for credit losses:
Changes in loan activity(1)(2)
$(63)$
Redesignation of loans from HFI to HFS
307 175 
Actual and forecasted home prices
1,179 (921)
Actual and projected interest rates
(892)1,257 
Changes in assumptions regarding COVID-19 forbearance and change in actual and expected loan delinquencies(1)(3)
127 (2,587)
Other(5)
4 (97)
Single-family benefit (provision) for credit losses
662 (2,170)
Multifamily benefit (provision) for credit losses:
Changes in loan activity(2)
(119)(22)
Actual and projected interest rates
(19)216 
Actual and projected economic data(4)
315 — 
Estimated impact of the COVID-19 pandemic54 (636)
Other(5)
(128)32 
Multifamily benefit (provision) for credit losses
103 (410)
Total benefit (provision) for credit losses
$765 $(2,580)
Change in expected credit enhancement recoveries:(6)
Single-family
$(16)$58 
Multifamily
(22)127 
Total change in expected credit enhancement recoveries
$(38)$185 
(1)Prior-period amounts have been adjusted to conform to the current-year presentation to include changes in the allowance due to loan delinquency.
(2)Primarily consists of loan liquidations, amortization of concessions granted to borrowers and the impact of FHFA’s Advisory Bulletin 2012-02, “Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention” (the “Advisory Bulletin”). For multifamily, changes in loan activity also includes changes in the allowance due to loan delinquencies and the impact of changes in debt service coverage ratios (“DSCRs”) based on updated property financial information, which is used to assess loan credit quality.
(3)Includes changes in the allowance due to assumptions regarding loss mitigation when loans exit forbearance, as well as adjustments to modeled results.
(4)For the three months ended March 31, 2020, the impact of actual and projected economic data is grouped with “Estimated impact of the COVID-19 pandemic” as these impacts were driven by the pandemic.
(5)Includes provision for allowance for accrued interest receivable. For single-family, also includes changes in the reserve for guaranty losses that are not separately included in the other components. For multifamily, also includes the impact of credit model enhancements implemented in the first quarter of 2021.
Fannie Mae First Quarter 2021 Form 10-Q
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MD&A | Consolidated Results of Operations
(6)Includes changes in expected credit enhancement recoveries only for active loans. Recoveries received after foreclosure, which are included in “Change in expected credit enhancement recoveries” in “Summary of Condensed Consolidated Results of Operations,” are not included.
Single-Family Benefit (Provision) for Credit Losses
The primary factors that contributed to our single-family benefit for credit losses in the first quarter of 2021 were:
Benefit from actual and expected home price growth. During the first quarter of 2021, home price growth was unseasonably strong. We also increased our expectations for home price growth on a national basis for full-year 2021. Higher home prices decrease the likelihood that loans will default and reduce the amount of credit loss on loans that do default, which impacts our estimate of losses and ultimately reduces our loss reserves and provision for credit losses. See “Key Market Economic Indicators” for additional information about how home prices affect our credit loss estimates, including a discussion of home price appreciation in the first quarter of 2021 and our home price forecast.
Benefit from the redesignation of certain reperforming single-family loans from HFI to HFS. After a temporary pause in sales of nonperforming and reperforming loans, we resumed our plans for sales late in the first quarter of 2021. As a result, we redesignated certain reperforming single-family loans from HFI to HFS, as we no longer intend to hold them for the foreseeable future or to maturity. Upon redesignation of these loans, we recorded the loans at the lower of cost or fair value with a write-off against the allowance for loan losses. Amounts recorded in the allowance related to these loans exceeded the amounts written off, resulting in a benefit for credit losses.
Benefit from changes in assumptions regarding COVID-19 forbearance and change in actual and expected loan delinquencies. Management continues to apply its judgment and supplement model results as of March 31, 2021, due to continued uncertainty regarding the loss mitigation outcomes of borrowers in forbearance, and uncertainty regarding the future impact of the pandemic, including the efficacy of the COVID-19 vaccines on new strains of the virus and its effect on the economy. Although uncertainty remains, our expected credit losses as a result of the COVID-19 pandemic decreased in the first quarter of 2021, driven by the passage of the American Rescue Plan, which provides additional economic stimulus and helps support the continued economic recovery. In addition, decreased political uncertainty compared with the end of 2020 combined with the increased progression of the COVID-19 vaccines rollout lessened expectations of credit losses. Based on these factors in the first quarter of 2021, management used its judgment to reduce the non-modeled adjustment that was previously applied to the loss projections developed by our credit loss model.
The impact of these factors was partially offset by the impact of the following factor, which reduced our single-family benefit for credit losses recognized in the first quarter of 2021:
Provision from higher actual and projected interest rates. Although we continue to be in a historically low interest-rate environment, actual and projected interest rates rose in the first quarter of 2021. As mortgage interest rates increase, we expect a decrease in future prepayments on single-family loans, including modified loans. Lower expected prepayments extend the expected lives of modified loans, which increases the expected impairment relating to term and interest-rate concessions provided on these loans, resulting in a provision for credit losses.
The primary factors that impacted our single-family provision for credit losses in the first quarter of 2020 were:
Expected credit losses as a result of the COVID-19 pandemic. Given the rapidly changing and deteriorating market conditions in the first quarter of 2020 as a result of the unprecedented COVID-19 pandemic, we believed our model used to estimate single-family credit losses as of March 31, 2020 did not capture the entirety of losses we expected to incur relating to COVID-19. As a result, management used its judgment to increase the loss projections developed by our credit loss model to reflect our expectations at that time relating to COVID-19’s impact. These judgments included adjusting our modeled results for (1) the expected impact of widespread forbearance programs, including the rate of borrower participation, and the volume and type of loan modifications as a result thereof, (2) the effect of troubled debt restructuring (“TDR”) accounting relief from the CARES Act, and (3) lower expected prepayment volumes given the sharp rise in unemployment rates that were expected to stay elevated over the near term. In developing the model adjustment, management considered the credit risk profile of our single-family loan book of business at that time, as well as relevant historical credit loss experience during rare or stressful economic environments.
A decrease in our expectations for home price growth. In the first quarter of 2020, we revised our forecast to reflect near zero home price appreciation on a national basis for 2020 due to COVID-19 market disruptions. Lower home prices increase the likelihood that loans will default and increase the amount of credit loss on
Fannie Mae First Quarter 2021 Form 10-Q
16

MD&A | Consolidated Results of Operations
loans that do default, which impacts our estimate of losses and ultimately increases our loss reserves and provision for credit losses.
These factors were partially offset by lower actual and projected mortgage interest rates. As mortgage interest rates declined, we expected an increase in future prepayments on single-family loans, including modified loans. As noted above, we adjusted downward our modeled expectation of prepayment volumes due to the COVID-19 pandemic, which reduced this modeled benefit from interest rates.
Multifamily Benefit (Provision) for Credit Losses
The primary factors that impacted our multifamily benefit for credit losses in the first quarter of 2021 were:
Benefit from actual and projected economic data. In the first quarter of 2021, property value forecasts increased due to continued demand for multifamily housing. In addition, improved job growth led to an increase in projected average property net operating income, which reduced the probability of loan defaults resulting in a benefit for credit losses for the quarter.
Benefit from changes in expected credit losses as a result of the COVID-19 pandemic. Similar to our single-family provision for credit losses described above, management continues to apply its judgment and supplement model results as of March 31, 2021, due to continued uncertainty regarding the future impact of the pandemic, including the efficacy of the COVID-19 vaccines on new strains of the virus and its effect on the economy. Although uncertainty remains, our expected credit losses as a result of the COVID-19 pandemic decreased in the first quarter of 2021 driven by positive economic growth and the passage of the American Rescue Plan, which provided additional economic stimulus. Based on these factors in the first quarter of 2021, management used its judgment to reduce the non-modeled adjustment that was previously applied to the loss projections developed by our credit loss model.
Our multifamily provision for credit losses in the first quarter of 2020 was primarily driven by:
Expected credit losses as a result of the COVID-19 pandemic. Consistent with the 2020 single-family provision for credit losses discussed above, we believed our model used to estimate multifamily credit losses as of March 31, 2020 did not capture the entirety of losses we expected to incur relating to the economic dislocation caused by the COVID-19 pandemic. As a result, management used its judgment to increase the loss projections developed by our credit loss model to reflect our expectations at that time relating to COVID-19’s impact. Accordingly, our multifamily provision for credit losses was primarily driven by higher expected unemployment rates, which we expected would increase the number of loans in forbearance and reduce property net operating income in the near term, thereby decreasing forecasted property values and increasing the probability of loan default. In developing these adjustments, management considered the credit risk profile of our multifamily loan book of business at that time, as well as relevant historical credit loss experience during rare or stressful economic environments.
Fannie Mae First Quarter 2021 Form 10-Q
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MD&A | Consolidated Balance Sheet Analysis
Consolidated Balance Sheet Analysis
This section discusses our condensed consolidated balance sheets and should be read together with our condensed consolidated financial statements and the accompanying notes.
Summary of Condensed Consolidated Balance Sheets
As of
March 31, 2021December 31, 2020Variance
(Dollars in millions)
Assets
Cash and cash equivalents and federal funds sold and securities purchased under agreements to resell or similar arrangements
$81,475 $66,537 $14,938 
Restricted cash and cash equivalents87,803 77,286 10,517 
Investments in securities112,758 138,239 (25,481)
Mortgage loans:
Of Fannie Mae111,097 117,911 (6,814)
Of consolidated trusts3,638,411 3,546,533 91,878 
Allowance for loan losses(9,628)(10,552)924 
Mortgage loans, net of allowance for loan losses3,739,880 3,653,892 85,988 
Deferred tax assets, net12,516 12,947 (431)
Other assets35,671 36,848 (1,177)
Total assets$4,070,103 $3,985,749 $84,354 
Liabilities and equity
Debt:
Of Fannie Mae$273,442 $289,572 $(16,130)
Of consolidated trusts3,740,538 3,646,164 94,374 
Other liabilities25,898 24,754 1,144 
Total liabilities4,039,878 3,960,490 79,388 
Fannie Mae stockholders’ equity:
Senior preferred stock120,836 120,836 — 
Other net deficit(90,611)(95,577)4,966 
Total equity30,225 25,259 4,966 
Total liabilities and equity$4,070,103 $3,985,749 $84,354 
Cash and Cash Equivalents and Federal Funds Sold and Securities Purchased under Agreements to Resell or Similar Arrangements, Restricted Cash and Cash Equivalents and Investments in Securities
The increase in cash and cash equivalents and federal funds sold and securities purchased under agreements to resell or similar arrangements from December 31, 2020 to March 31, 2021 was offset by a decrease in investments in securities, driven by a shift to investments in federal funds sold and securities purchased under agreements to resell and similar arrangements as of March 31, 2021 as compared with investments in U.S. Treasury securities at December 31, 2020. The overall net amount decreased primarily driven by a decrease in funding debt issuances during the period resulting in net cash outflows for the quarter, which we discuss in “Liquidity and Capital Management—Cash Flows.”
Mortgage Loans, Net of Allowance
The mortgage loans reported in our condensed consolidated balance sheets are classified as either HFS or HFI and include loans owned by Fannie Mae and loans held in consolidated trusts.
Mortgage loans, net of allowance for loan losses increased as of March 31, 2021 compared with December 31, 2020, primarily driven by an increase in mortgage loans due to acquisitions, primarily from continued high refinancing activity, outpacing liquidations and sales.
For additional information on our mortgage loans, see “Note 3, Mortgage Loans,” and for additional information on changes in our allowance for loan losses, see “Note 4, Allowance for Loan Losses.”
Fannie Mae First Quarter 2021 Form 10-Q
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MD&A | Consolidated Balance Sheet Analysis
Debt
The decrease in debt of Fannie Mae from December 31, 2020 to March 31, 2021 was primarily due to decreased funding needs. The increase in debt of consolidated trusts from December 31, 2020 to March 31, 2021 was primarily driven by sales of Fannie Mae MBS, which are accounted for as issuances of debt of consolidated trusts in our condensed consolidated balance sheets, since the MBS certificate ownership is transferred from us to a third party. See “Liquidity and Capital Management—Debt Funding” for a summary of activity in debt of Fannie Mae and a comparison of the mix between our outstanding short-term and long-term debt. Also see “Note 7, Short-Term and Long-Term Debt” for additional information on our total outstanding debt.
Stockholders’ Equity
Our net equity increased as of March 31, 2021 compared with December 31, 2020 by the amount of our comprehensive income recognized during the first quarter of 2021.
The aggregate liquidation preference of the senior preferred stock increased to $146.8 billion as of March 31, 2021 and will further increase to $151.7 billion as of June 30, 2021 due to the $5.0 billion increase in our net worth during the first quarter of 2021.
Retained Mortgage Portfolio
We use our retained mortgage portfolio primarily to provide liquidity to the mortgage market through our whole loan conduit and to support our loss mitigation activities, particularly in times of economic stress when other sources of liquidity to the mortgage market may decrease or withdraw. Previously, we also used our retained mortgage portfolio for investment purposes.
Our retained mortgage portfolio consists of mortgage loans and mortgage-related securities that we own, including Fannie Mae MBS and non-Fannie Mae mortgage-related securities. Assets held by consolidated MBS trusts that back mortgage-related securities owned by third parties are not included in our retained mortgage portfolio.
The chart below separates the instruments within our retained mortgage portfolio, measured by unpaid principal balance, into three categories based on each instrument’s use:
Lender liquidity, which includes balances related to our whole loan conduit activity, supports our efforts to provide liquidity to the single-family and multifamily mortgage markets.
Loss mitigation supports our loss mitigation efforts through the purchase of delinquent loans from our MBS trusts.
Other represents assets that were previously purchased for investment purposes. The majority of the balance of “Other” as of March 31, 2021 consisted of Fannie Mae reverse mortgage securities and reverse mortgage loans. We expect the amount of assets in “Other” will continue to decline over time as they liquidate, mature or are sold.
Retained Mortgage Portfolio
(Dollars in billions)
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The modest decrease in our retained mortgage portfolio as of March 31, 2021 compared with December 31, 2020 was primarily due to payoffs during the first quarter of 2021 in our loss mitigation loans driven by mortgage refinance activity.
Fannie Mae First Quarter 2021 Form 10-Q
19

MD&A | Retained Mortgage Portfolio
The table below displays the components of our retained mortgage portfolio, measured by unpaid principal balance. Based on the nature of the asset, these balances are included in either “Investments in securities” or “Mortgage loans of Fannie Mae” in our Summary of Condensed Consolidated Balance Sheets.
Retained Mortgage Portfolio
As of
March 31, 2021December 31, 2020
(Dollars in millions)
Lender liquidity:
Agency securities(1)
$34,849 $34,810 
Mortgage loans45,194 45,895 
Total lender liquidity80,043 80,705 
Loss mitigation mortgage loans(2)
53,267 56,315 
Other:
Reverse mortgage loans11,618 12,388 
Mortgage loans4,079 4,881 
Reverse mortgage securities(3)
7,118 7,185 
Private-label and other securities450 473 
Fannie Mae-wrapped private-label securities510 521 
Mortgage revenue bonds162 182 
Total other23,937 25,630 
Total retained mortgage portfolio$157,247 $162,650 
Retained mortgage portfolio by segment:
Single-family mortgage loans and mortgage-related securities$150,397 $154,943 
Multifamily mortgage loans and mortgage-related securities$6,850 $7,707 
(1)Consists of Fannie Mae, Freddie Mac and Ginnie Mae mortgage-related securities, including Freddie Mac securities guaranteed by Fannie Mae. Excludes Fannie Mae and Ginnie Mae reverse mortgage securities and Fannie Mae-wrapped private-label securities.
(2)Includes single-family loans classified as TDRs that were on accrual status of $26.1 billion and $29.4 billion as of March 31, 2021 and December 31, 2020, respectively, and single-family loans on nonaccrual status of $19.6 billion as of March 31, 2021 and December 31, 2020. Includes multifamily loans classified as TDRs that were on accrual status of $24 million and $20 million as of March 31, 2021 and December 31, 2020, respectively, and multifamily loans on nonaccrual status of $533 million and $536 million as of March 31, 2021 and December 31, 2020, respectively.
(3)Consists of Fannie Mae and Ginnie Mae reverse mortgage securities.
The amount of mortgage assets that we may own is capped at $250 billion and will decrease to $225 billion on December 31, 2022 under the terms of our senior preferred stock purchase agreement with Treasury. We are currently managing our business to a $225 billion cap pursuant to instructions from FHFA. See “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” in our 2020 Form 10-K for additional information on our portfolio cap.
We include 10% of the notional value of interest-only securities in calculating the size of the retained portfolio for the purpose of determining compliance with the senior preferred stock purchase agreement retained portfolio limits and associated FHFA guidance. As of March 31, 2021, 10% of the notional value of our interest-only securities was $2.2 billion, which is not included in the table above.
Under the terms of our MBS trust documents, we have the option or, in some instances, the obligation, to purchase mortgage loans that meet specific criteria from an MBS trust. The purchase price for these loans is the unpaid principal balance of the loan plus accrued interest. If a delinquent loan remains in a single-family MBS trust, the servicer is responsible for advancing the borrower’s missed scheduled principal and interest payments to the MBS holders for up to four months, after which time we must make these missed payments. In addition, we must reimburse servicers for advanced principal and interest payments. The cost of purchasing most delinquent loans from a single-family Fannie Mae MBS trust and holding them in our retained mortgage portfolio is currently less than the cost of advancing delinquent payments to security holders.
Except for loans that are in forbearance or that have been granted certain other types of loss mitigation options (such as a repayment plan or payment deferral), we have historically purchased loans from single-family MBS trusts when they become four consecutive monthly payments delinquent. In September 2020, FHFA instructed both us and Freddie Mac
Fannie Mae First Quarter 2021 Form 10-Q
20

MD&A | Retained Mortgage Portfolio
to extend the timeframe for our single-family delinquent loan buyout policy to 24 consecutively missed monthly payments (that is, loans that are 24 months past due) effective January 1, 2021. We expect that in most cases we nevertheless will purchase delinquent loans from single-family MBS trusts prior to the 24-month deadline under one of the exceptions to the FHFA directive, which includes loans that are permanently modified, loans subject to a short-sale or deed-in-lieu of foreclosure, loans that are paid in full and loans referred to foreclosure.
In support of our loss mitigation strategies, we purchased $1.5 billion of loans from our single-family MBS trusts in the first quarter of 2021, the substantial majority of which were delinquent, compared with $3.0 billion of loans purchased from single-family MBS trusts in the first quarter of 2020. We expect the amount of loans we buy out of trusts may increase, particularly in 2022, compared with 2020 as a result of COVID-19-related loan delinquencies and loss mitigation strategies, which may increase the size of our retained mortgage portfolio. However, the magnitude of any increase in our retained mortgage portfolio will depend on the volume of loans we ultimately buy, the timing of those purchases, and the length of time those loans remain in our retained mortgage portfolio. These factors are highly uncertain and depend on a number of things, including the length of time loans remain in forbearance, the duration of foreclosure suspensions, and the nature and success of our loss mitigation activities, including payment deferrals and repayment plans, which do not require us to purchase loans out of trust. Because of our mortgage asset limit, our business activities may be constrained. See “Single-Family Business—Single-Family Mortgage Credit Risk Management—Single-Family Problem Loan Management—Single-Family Loans in Forbearance” and “Multifamily Business—Multifamily Mortgage Credit Risk Management—Multifamily Problem Loan Management and Foreclosure Prevention” for information on our loans in forbearance.
Guaranty Book of Business
Our “guaranty book of business” consists of:
Fannie Mae MBS outstanding, excluding the portions of any structured securities we issue that are backed by Freddie Mac securities;
mortgage loans of Fannie Mae held in our retained mortgage portfolio; and
other credit enhancements that we provide on mortgage assets.
“Total Fannie Mae guarantees” consists of:
our guaranty book of business; and
the portions of any structured securities we issue that are backed by Freddie Mac securities.
We and Freddie Mac issue single-family uniform mortgage-backed securities, or “UMBS®.” In this report, we use the term “Fannie Mae-issued UMBS” to refer to single-family Fannie Mae MBS that are directly backed by fixed-rate mortgage loans and generally eligible for trading in the to-be-announced (“TBA”) market. We use the term “Fannie Mae MBS” or “our MBS” to refer to any type of mortgage-backed security that we issue, including UMBS, Supers®, Real Estate Mortgage Investment Conduit securities (“REMICs”) and other types of single-family or multifamily mortgage-backed securities.
Some Fannie Mae MBS that we issue are backed in whole or in part by Freddie Mac securities. When we resecuritize Freddie Mac securities into Fannie Mae-issued structured securities, such as Supers and REMICs, our guaranty of principal and interest extends to the underlying Freddie Mac securities. However, Freddie Mac continues to guarantee the payment of principal and interest on the underlying Freddie Mac securities that we have resecuritized. We do not charge an incremental guaranty fee to include Freddie Mac securities in the structured securities that we issue. References to our single-family guaranty book of business in this report exclude Freddie Mac-acquired mortgage loans underlying Freddie Mac securities that we have resecuritized.
Fannie Mae First Quarter 2021 Form 10-Q
21

MD&A | Guaranty Book of Business
The table below displays the composition of our guaranty book of business based on unpaid principal balance. Our single-family guaranty book of business accounted for 89% and 90% of our guaranty book of business as of March 31, 2021 and December 31, 2020, respectively.
Composition of Fannie Mae Guaranty Book of Business
As of
March 31, 2021December 31, 2020
Single-Family
Multifamily
Total
Single-Family
Multifamily
Total
(Dollars in millions)
Conventional guaranty book of business(1)
$3,380,576 $399,596 $3,780,172 $3,305,030 $386,379 $3,691,409 
Government guaranty book of business(2)
19,659 2,180 21,839 20,777 2,268 23,045 
Guaranty book of business3,400,235 401,776 3,802,011 3,325,807 388,647 3,714,454 
Freddie Mac securities guaranteed by Fannie Mae(3)
154,623  154,623 137,316 — 137,316 
Total Fannie Mae guarantees$3,554,858 $401,776 $3,956,634 $3,463,123 $388,647 $3,851,770 
(1)Refers to mortgage loans and mortgage-related securities that are not guaranteed or insured, in whole or in part, by the U.S. government.
(2)Refers to mortgage loans and mortgage-related securities guaranteed or insured, in whole or in part, by the U.S. government.
(3)Consists of approximately (i) $126.0 billion and $110.7 billion in unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers as of March 31, 2021 and December 31, 2020, respectively; and (ii) $28.7 billion and $26.6 billion in unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs as of March 31, 2021 and December 31, 2020, respectively.
The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended, including by the Federal Housing Finance Regulatory Reform Act of 2008 (together, the “GSE Act”) requires us to set aside each year an amount equal to 4.2 basis points of the unpaid principal balance of our new business purchases and to pay this amount to specified U.S. Department of Housing and Urban Development (“HUD”) and Treasury funds in support of affordable housing. In March 2021, we paid $603 million to the funds based on our new business purchases in 2020. For the first quarter of 2021, we recognized an expense of $177 million related to this obligation based on $422.2 billion in new business purchases during the period. We expect to pay this amount to the funds in 2022, plus additional amounts to be accrued based on our new business purchases in the remaining nine months of 2021. See “Business—Legislation and Regulation—GSE Act and Other Legislative and Regulatory Matters—Affordable Housing Allocations” in our 2020 Form 10-K for more information regarding this obligation.
Fannie Mae First Quarter 2021 Form 10-Q
22

MD&A | Business Segments
Business Segments
We have two reportable business segments: Single-Family and Multifamily. The Single-Family business operates in the secondary mortgage market relating to single-family mortgage loans, which are secured by properties containing four or fewer residential dwelling units. The Multifamily business operates in the secondary mortgage market relating primarily to multifamily mortgage loans, which are secured by properties containing five or more residential units.
The chart below displays the net revenues and net income for each of our business segments for the first quarter of 2020 compared with the first quarter of 2021. Net revenues consist of net interest income and fee and other income.
Business Segment Net Revenues and Net Income
(Dollars in billions)
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In the following sections, we describe each segment’s business metrics, financial results and credit performance. For an overview of how we are compensated for and manage the risk of credit losses through the life cycle of our loans and how we measure our credit risk, see "Business—Managing Mortgage Credit Risk” in our 2020 Form 10-K.
Single-Family Business
Our Single-Family business provides liquidity to the mortgage market primarily by acquiring single-family loans from lenders and securitizing those loans into Fannie Mae MBS, which are either delivered to the lenders or sold to investors or dealers.
This section supplements and updates information regarding our Single-Family business segment in our 2020 Form 10-K. See “MD&A—Single-Family Business” in our 2020 Form 10-K for additional information regarding the primary business activities, customers and competition of our Single-Family business.
Single-Family Mortgage Market
Housing activity slowed modestly in the first quarter of 2021 compared with the fourth quarter of 2020. Total home sales and single-family housing starts moderated due to near record-low inventory of available homes for sale, inclement weather in February, and construction capacity constraints. However, we expect solid gains in total home sales and single-family housing starts for full-year 2021 compared with 2020. Mortgage rates increased in the first quarter of 2021,
Fannie Mae First Quarter 2021 Form 10-Q
23


MD&A | Single-Family Business | Single-Family Mortgage Market
and we expect additional increases this year, which will likely lead to a decline in total refinance originations for 2021 compared with 2020.
Total existing home sales averaged 6.3 million units annualized in the first quarter of 2021, compared with 6.7 million units in the fourth quarter of 2020, according to data from the National Association of REALTORS®. According to the U.S. Census Bureau, new single-family home sales increased during the first quarter of 2021, averaging an annualized rate of 959,000 units, compared with 924,000 units in the fourth quarter of 2020.
The 30-year fixed mortgage rate averaged 3.08% in March 2021, compared with 2.68% in December 2020, according to Freddie Mac’s Primary Mortgage Market Survey®.
We forecast that total originations in the U.S. single-family mortgage market in 2021 will decrease from 2020 levels by approximately 12%, from an estimated $4.54 trillion in 2020 to $4.00 trillion in 2021, and that the amount of refinance originations in the U.S. single-family mortgage market will decrease from an estimated $2.89 trillion in 2020 to $2.11 trillion in 2021. Declining origination volume reduces the number of mortgages available for us to acquire, which affects our business volume. See “Key Market Economic Indicators” for additional discussion of how housing activity can affect our financial results and the uncertainties that may affect our forecasts and expectations.
Single-Family Market Activity
Single-Family Mortgage-Related Securities Issuances Share
Our single-family Fannie Mae MBS issuances were $403.7 billion for the first quarter of 2021, compared with $185.7 billion for the first quarter of 2020. This increase was driven by a high volume of refinance activity in the first quarter of 2021 due to historically low mortgage rates. Based on the latest data available, the chart below displays our estimated share of single-family mortgage-related securities issuances in the first quarter of 2021 as compared with that of our primary competitors for the issuance of single-family mortgage-related securities.
Single-Family Mortgage-Related Securities Issuances Share
First Quarter 2021
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We estimate our share of single-family mortgage-related securities issuances was 41% in the fourth quarter of 2020 and 37% in the first quarter of 2020.
Presentation of Our Single-Family Guaranty Book of Business
For purposes of the information reported in this “Single-Family Business” section, we measure the single-family guaranty book of business using the unpaid principal balance of our mortgage loans underlying Fannie Mae MBS outstanding. By contrast, the single-family guaranty book of business presented in the “Composition of Fannie Mae Guaranty Book of Business” table in the “Guaranty Book of Business” section is based on the unpaid principal balance of the Fannie Mae MBS outstanding, rather than the unpaid principal balance of the underlying mortgage loans. These amounts differ primarily as a result of payments we receive on underlying loans that have not yet been remitted to the MBS holders or instances where we have advanced missed borrower payments on mortgage loans to make required distributions to related MBS holders. As measured for purposes of the information reported below, our single-family conventional guaranty book of business was $3,272.0 billion as of March 31, 2021 and $3,200.9 billion as of December 31, 2020.
Fannie Mae First Quarter 2021 Form 10-Q
24

MD&A | Single-Family Business | Single-Family Business Metrics
Single-Family Business Metrics
Net interest income for our Single-Family business is driven by the guaranty fees we charge and the size of our single-family conventional guaranty book of business. Our business volume and growth in our guaranty book of business is affected by the rate of growth in total U.S. residential mortgage debt outstanding, the size of the U.S. residential mortgage market and our share of mortgage acquisitions. The guaranty fees we charge are based on the characteristics of the loans we acquire. We may adjust our guaranty fees in light of market conditions and to achieve return targets. As a result, the average charged guaranty fee on new acquisitions may fluctuate based on the credit quality and product mix of loans acquired, as well as market conditions and other factors.
We implemented an adverse market refinance fee effective December 1, 2020. The fee is intended to help us offset some of the higher projected expenses and risk due to COVID-19. For every $1 billion in eligible refinance loans we acquire, we will collect $5 million in adverse market refinance fees, which will be amortized into net interest income over the contractual life of the loans as a cost basis adjustment. See “Executive Summary—COVID-19 Impact” in our 2020 Form 10-K for additional information on the adverse market refinance fee.
The charts below display our average charged guaranty fees, net of TCCA fees, on our single-family conventional guaranty book of business and on new single-family conventional loan acquisitions, along with our average single-family conventional guaranty book of business and our single-family conventional loan acquisitions for the periods presented.
Select Single-Family Business Metrics
(Dollars in billions)
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Average charged guaranty fee on single-family conventional guaranty book of business, net of TCCA fees(1)
Average single-family conventional guaranty book of business(2)
Average charged guaranty fee on new single-family conventional acquisitions, net of TCCA fees(1)
Single-family conventional acquisitions
(1)    Excludes the impact of a 10 basis point guaranty fee increase implemented pursuant to the TCCA, the incremental revenue from which is remitted to Treasury and not retained by us.
(2)    Our single-family conventional guaranty book of business primarily consists of single-family conventional mortgage loans underlying Fannie Mae MBS outstanding. It also includes single-family conventional mortgage loans of Fannie Mae held in our retained mortgage portfolio, and other credit enhancements that we provide on single-family conventional mortgage assets. Our single-family conventional guaranty book of business does not include: (a) non-Fannie Mae single-family mortgage-related securities held in our retained mortgage portfolio for which we do not provide a guaranty; (b) mortgage loans guaranteed or insured, in whole or in part, by the U.S. government; or (c) Freddie Mac-acquired mortgage loans underlying Freddie Mac-issued UMBS that we have resecuritized. Our average single-family conventional guaranty book of business is based on quarter-end balances.
Fannie Mae First Quarter 2021 Form 10-Q
25

MD&A | Single-Family Business | Single-Family Business Metrics
Average charged guaranty fee on newly acquired conventional single-family loans is a metric management uses to measure the price we earn as compensation for the credit risk we manage and to assess our return. Average charged guaranty fee represents, on an annualized basis, the sum of the base guaranty fees charged during the period for our new single-family conventional guaranty arrangements, which we will receive monthly over the life of the loan, plus the recognition of any upfront cash payments, including loan-level price adjustments and the recently implemented adverse market refinance fee, based on an estimated average life at the time of acquisition. We use loan-level price adjustments, including various upfront risk-based fees, to price for the credit risk we assume in providing our guaranty. FHFA must approve changes to the national loan-level price adjustments we charge and can direct us to make other changes to our single-family guaranty fee pricing.
Our average charged guaranty fee on newly acquired conventional single-family loans, net of TCCA fee decreased in the first quarter of 2021 compared with the first quarter of 2020. The decrease in average charged guaranty fee on new acquisitions was primarily due to an increase in our estimated average life of loans acquired in the first quarter of 2021 compared with the first quarter of 2020. Due to an increase in actual and projected mortgage rates in the first quarter of 2021 and as a result of a large portion of our book of business being originated in this historically low interest-rate environment, we expect slower prepayments in the future as fewer borrowers can benefit from refinancing as rates rise. Lower expected prepayments increases the estimated lives of the loans we acquire, thereby decreasing the rate at which we recognize upfront cash payments as income in our calculation of average charged guaranty fee. The impact of the change in estimated life was partially offset by the increase in guaranty fee from the implementation of the adverse market refinance fee in December 2020.
Single-Family Business Financial Results(1)
For the Three Months Ended March 31,
20212020Variance
(Dollars in millions)
Net interest income(2)
$5,894 $4,541 $1,353 
Fee and other income62 94 (32)
Net revenues5,956 4,635 1,321 
Investment gains (losses), net64 (152)216 
Fair value gains (losses), net740 (460)1,200 
Administrative expenses(623)(629)
Credit-related income (expense)(3)
679 (2,250)2,929 
TCCA fees(2)
(731)(637)(94)
Credit enhancement expense(226)(316)90 
Change in expected credit enhancement recoveries(4)
(16)58 (74)
Other expenses, net(5)