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fnm-20220331

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, 2022

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

For the transition period from to

Commission file number: 0-50231

Federal National Mortgage Association

(Exact name of registrant as specified in its charter)

Fannie Mae

Federally chartered corporation

52-0883107

1100 15th Street, NW

800

232-6643

Washington,

20005

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

(Address of principal executive offices, including zip code)

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

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

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of April 15, 2022, there were 1,158,087,567 shares of common stock of the registrant outstanding.


TABLE OF CONTENTS
		Page
PART I—Financial Information		1
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	65
	Condensed Consolidated Statements of Operations and Comprehensive Income	66
	Condensed Consolidated Statements of Cash Flows	67
	Condensed Consolidated Statements of Changes in Equity	68
	Note 1—Summary of Significant Accounting Policies	69
	Note 2—Consolidations and Transfers of Financial Assets	73
	Note 3—Mortgage Loans	75
	Note 4—Allowance for Loan Losses	85
	Note 5—Investments in Securities	88
	Note 6—Financial Guarantees	91
	Note 7—Short-Term and Long-Term Debt	92
	Note 8—Derivative Instruments	93
	Note 9—Segment Reporting	98
	Note 10—Concentrations of Credit Risk	99
	Note 11—Netting Arrangements	103
	Note 12—Fair Value	104
	Note 13—Commitments and Contingencies	114
	Note 14—Regulatory Capital Requirements	115
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
	Introduction	1
	Executive Summary	2
	Summary of Our Financial Performance	2
	Liquidity Provided in the First Quarter of 2022	3
	Legislation and Regulation	3
	Key Market Economic Indicators	5
	Consolidated Results of Operations	9
	Consolidated Balance Sheet Analysis	17
	Retained Mortgage Portfolio	18
	Guaranty Book of Business	21
	Business Segments	22
	Single-Family Business	23
	Single-Family Mortgage Market	23
	Single-Family Market Activity	23
	Single-Family Business Metrics	24
	Single-Family Business Financial Results	25
	Single-Family Mortgage Credit Risk Management	26
	Multifamily Business	40
	Multifamily Mortgage Market	40
	Multifamily Business Metrics	40
	Multifamily Business Financial Results	42
	Multifamily Mortgage Credit Risk Management	42
	Consolidated Credit Ratios and Select Credit Information	47
	Liquidity and Capital Management	48

	Risk Management	55
	Institutional Counterparty Credit Risk Management	55
	Market Risk Management, including Interest-Rate Risk Management	56
	Critical Accounting Estimates	58
	Impact of Future Adoption of New Accounting Guidance	61


Fannie Mae First Quarter 2022 Form 10-Q						i


	Forward-Looking Statements	61
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	117
Item 4.	Controls and Procedures	117
PART II—Other Information		120
Item 1.	Legal Proceedings	120
Item 1A.	Risk Factors	121
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	122
Item 3.	Defaults Upon Senior Securities	123
Item 4.	Mine Safety Disclosures	123
Item 5.	Other Information	123
Item 6.	Exhibits	124


Fannie Mae First Quarter 2022 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 functions and authorities by our Board of Directors. Our directors owe their fiduciary duties of care and loyalty solely to the conservator. Thus, while we are in conservatorship, the Board has no fiduciary duties to the company or its stockholders.
			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. Members of Congress and the Administration continue to express the importance of housing finance system reform.
			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, and our agreements with Treasury, see “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” and “Risk Factors—GSE and Conservatorship Risk” in our Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”).

You should read this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in conjunction with our unaudited condensed consolidated financial statements and related notes in this report and the more detailed information in our 2021 Form 10-K. You can find a “Glossary of Terms Used in This Report” in our 2021 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 2021 Form 10-K.

Introduction

Fannie Mae is a leading source of financing for mortgages in the United States, with $4.3 trillion in assets as of March 31, 2022. Organized as a government-sponsored entity, Fannie Mae is a shareholder-owned corporation. Our charter is an act of Congress, which establishes that our purposes are 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 work primarily 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. 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 depends on the rates at which loans in our book of business turn over and new loans are added.


Fannie Mae First Quarter 2022 Form 10-Q						1


			MD&A \| Executive Summary

Executive Summary

Summary of Our Financial Performance

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Q1 2022 vs. Q1 2021

•Net revenues increased $653 million in the first quarter of 2022 compared with the first quarter of 2021, primarily due to higher base guaranty fees driven by an increase in the size of our guaranty book of business, partially offset by a decrease in amortization income as a result of lower prepayment volumes in the first quarter of 2022 compared with the first quarter of 2021.

•Net income decreased $585 million in the first quarter of 2022 compared with the first quarter of 2021, driven primarily by a shift from credit-related income in the first quarter of 2021 to credit-related expense in the first quarter of 2022, partially offset by an increase in net interest income due to higher base guaranty fees as discussed above.

•Net worth increased to $51.8 billion as of March 31, 2022 from $47.4 billion as of December 31, 2021. The increase is attributable to $4.4 billion of comprehensive income for the first quarter of 2022.

Financial Performance Outlook

We expect lower amortization income in 2022 compared with 2021, driven by reduced refinancing activity. In addition, we expect a shift from significant credit-related income in 2021 to modest credit-related expense in 2022. We expect those factors to result in lower net income in 2022 compared with 2021. See “Key Market Economic Indicators” for a discussion of how home prices, interest rates and other macroeconomic factors can affect our financial results.


Fannie Mae First Quarter 2022 Form 10-Q						2


			MD&A \| Executive Summary

Liquidity Provided in the First Quarter of 2022

Through our single-family and multifamily business segments, we provided $255 billion in liquidity to the mortgage market in the first quarter of 2022, enabling the financing of approximately 935,000 home purchases, refinancings and rental units. For a description of how we determine multifamily new business volume and multifamily new units financed, see “Multifamily Business—Multifamily Business Metrics.”

Fannie Mae Provided $255 Billion in Liquidity in the First Quarter of 2022

Unpaid Principal Balance

Units

$104B

312K

Single-Family Home Purchases

$135B

487K

Single-Family Refinancings

$16B

136K

Multifamily Rental Units

We continued our commitment to green financing in the first quarter of 2022, issuing a total of $2.8 billion in multifamily green MBS, $371 million in single-family green MBS, and $781 million in multifamily green resecuritizations. We also issued $2.2 billion in multifamily social MBS in the first quarter of 2022. These green and social bonds were issued in alignment with our Sustainable Bond Framework, which guides our issuances of sustainable debt bonds and sustainable MBS that support energy and water efficiency and housing affordability. For information about the financing we have provided through our green bonds and our Sustainable Bond Framework, see “Directors, Executive Officers and Corporate Governance—Corporate Governance—ESG Matters” in our 2021 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 2021 Form 10-K. Also see “Risk Factors” in our 2021 Form 10-K and in this report for discussions of risks relating to legislative and regulatory matters.

Final Rule Amending the Enterprise Regulatory Capital Framework

On December 17, 2020, FHFA published a final rule to establish the enterprise regulatory capital framework for Fannie Mae and Freddie Mac. On March 16, 2022, FHFA published a final rule amending the enterprise regulatory capital framework to refine both the prescribed leverage buffer amount and the risk-based capital treatment of credit risk transfer transactions. Specifically, the final rule published in March 2022:

•replaces the fixed leverage buffer equal to 1.5% of our adjusted total assets with a dynamic leverage buffer equal to 50% of our stability capital buffer;

•replaces the prudential risk weight floor of 10% on any retained credit risk transfer exposure with a prudential risk weight floor of 5% on any retained credit risk transfer exposure;

•removes the requirement to apply an overall effectiveness adjustment to our retained credit risk transfer exposures; and

•implements technical corrections to other provisions of the enterprise regulatory capital framework published on December 17, 2020.

These amendments to the enterprise regulatory capital framework increase the capital relief afforded by credit risk transfer transactions and reduce the amount of capital we will be required to hold relative to the requirements under the original framework; however, the amount of capital we will be required to hold under the amended enterprise regulatory capital framework remains substantially higher than the previously applicable statutory minimum capital requirement.

To be fully capitalized under the enterprise regulatory capital framework, we must meet all applicable leverage capital requirements and risk-based capital requirements, including applicable buffers, under the standardized approach of the rule. As of March 31, 2022, our risk-based adjusted total capital requirement (including buffers) represented the amount of capital needed to be fully capitalized under the standardized approach to the rule, and we had a $272 billion shortfall


Fannie Mae First Quarter 2022 Form 10-Q						3


			MD&A \| Legislation and Regulation

of our available capital (deficit) to this requirement. For more information regarding our capital requirements under the amended enterprise regulatory capital framework, see “Liquidity and Capital Management—Capital Management—Capital Requirements” and “Note 14, Regulatory Capital Requirements.” Also see “Business—Legislation and Regulation—GSE-Focused Matters—Capital—Enterprise Regulatory Capital Framework” in our 2021 Form 10-K for additional information on the enterprise regulatory capital framework.

Although FHFA has amended the enterprise regulatory capital framework, our senior preferred stock purchase agreement with Treasury currently includes a covenant that requires us to comply with the terms of the enterprise regulatory capital framework as published by FHFA in December 2020, disregarding any subsequent amendments or modifications. The enterprise regulatory capital framework requires that we provide our initial quarterly capital reports to FHFA by May 30, 2022 and that we publicly report our calculations of regulatory capital levels, buffers, adjusted total assets, and total risk-weighted assets under the standardized approach of the framework. FHFA has instructed us to report our capital requirements under the amended enterprise regulatory capital framework, not under the original requirements of the framework published in December 2020. Accordingly, we do not expect to be in compliance with the senior preferred stock purchase agreement covenant that requires us to comply with the terms of the enterprise regulatory capital framework as published by FHFA in December 2020.

Federal LIBOR Transition Legislation

On March 15, 2022, President Biden signed into law the “Consolidated Appropriations Act, 2022,” which includes the “Adjustable Interest Rate (LIBOR) Act” (the “LIBOR Act”). The LIBOR Act establishes a clear and uniform process for replacing LIBOR as the benchmark reference interest rate in existing contracts that do not contain a clearly defined or practicable replacement benchmark rate for when LIBOR is discontinued. LIBOR is currently expected to no longer be published after June 30, 2023. Under the LIBOR Act, references to the most common tenors of LIBOR in these contracts will be replaced as a matter of law, without the need to be amended, to instead reference a benchmark interest rate that will be identified in regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Federal Reserve must issue these regulations by September 11, 2022.

The LIBOR Act provides that the Federal Reserve must identify a replacement benchmark based on the Secured Overnight Financing Rate (“SOFR”) and will include an appropriate “tenor spread adjustment” to reflect historical spreads between LIBOR and SOFR. The LIBOR Act also provides for the Federal Reserve to identify any conforming changes relating to the implementation, administration and calculation of the new SOFR benchmark that will be incorporated in applicable LIBOR contracts. The LIBOR Act establishes a safe harbor for market participants that act in accordance with such legislation, shielding them from litigation for selecting and implementing the Federal Reserve-identified replacement rate and related conforming changes. The LIBOR Act reduces the risks to us associated with the approaching cessation of LIBOR.

Interagency Action Plan to Advance Property Appraisal and Valuation Equity

In March 2022, the Interagency Task Force on Property Appraisal and Valuation Equity (the “PAVE Task Force”) published an Action Plan to Advance Property Appraisal and Valuation Equity (the “PAVE Action Plan”). The PAVE Task Force is composed of thirteen federal agencies and offices, including the U.S. Department of Housing and Urban Development (“HUD”) and FHFA. The PAVE Action Plan outlines the historical role of racism in the valuation of residential property, examines the various forms of bias that can appear in residential property valuation practices, describes affirmative steps that federal agencies will take to advance equity in the residential property valuation process, and outlines further recommendations that government and industry stakeholders can initiate. Some of the proposed actions contained in the PAVE Action Plan, including additional initiatives the PAVE Task Force is considering such as expanded use of alternatives to traditional appraisals, could have a significant impact on our current appraisal and valuation policies and procedures. We expect to work closely with FHFA on future changes to these policies and procedures in support of the PAVE Action Plan and any further recommendations of the PAVE Task Force.


Fannie Mae First Quarter 2022 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. Our forecasts and expectations are based on many assumptions, subject to many uncertainties and may change, perhaps substantially, from our current forecasts and expectations. For further discussion on housing activity, see “Single-Family Business—Single-Family Mortgage Market” and “Multifamily Business—Multifamily Mortgage Market.”

Selected Benchmark Interest Rates

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(1)Refers to the U.S. weekly average fixed-rate mortgage rate according to Freddie Mac's Primary Mortgage Market Survey®. These rates are reported using the latest available data for a given period.

(2)According to Bloomberg.

(3)Refers to the daily rate per the Federal Reserve Bank of New York.

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 price 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 trend 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 a commitment is opened and when it settles. 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.


Fannie Mae First Quarter 2022 Form 10-Q						5


			MD&A \| Key Market Economic Indicators

•Credit-related income (expense). Increases in mortgage interest rates tend to lengthen the expected lives of our loans. Generally, the expected impairment and provision for credit losses associated with impaired loans increases as the expected lives of our mortgage loans increase and decreases as the expected loan lives shorten.

•Interest rates have increased significantly since December 31, 2021. The average 30-year fixed-rate mortgage rate reached 5.10% as of April 28, 2022.

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.

How Home Prices Can Affect Our Financial Results

•Actual and forecasted home prices impact our provision or benefit for credit losses as well as the growth and size of our guaranty book of business.

•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.

•As home prices rise, the principal balance of loans associated with purchase money mortgages may increase, causing growth in the size of our guaranty 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 guaranty book.

•Home price growth in the first quarter of 2022 was driven by low levels of housing supply relative to the level of demand. We believe some of the demand in the first quarter was driven by home buyers accelerating home purchases in anticipation of further increases in mortgage interest rates.

•While we expect home price growth on a national basis to remain strong in 2022, we do not expect the pace of rapid home price growth that we have experienced over the last year to continue. We expect home price growth to moderate from an annual growth rate of 19.1% in 2021 to 10.8% in 2022, with most of this growth occurring in the first half of the year. We expect slower home price growth in the second half of 2022 and in 2023, driven by interest-rate increases, inflation and reduced affordability, especially for low- and moderate-income borrowers. We also expect that some regions of the country may experience home price declines in 2023.


Fannie Mae First Quarter 2022 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.

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 as 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 impact of labor and material shortages 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.

•We expect a continued lack of inventory for both new and existing homes and worsening affordability will likely continue to constrain home sales into the second quarter of 2022. We expect single-family housing starts to be similar in 2022 as in 2021, as the pace of new construction continues to be affected by supply chain disruptions and labor shortages. Given the constraints on home sales and new construction, we expect housing activity to decline in 2022 compared to 2021.


Fannie Mae First Quarter 2022 Form 10-Q						7


			MD&A \| Key Market Economic Indicators

GDP, Unemployment Rate and Personal Consumption

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(1)Real 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 typically rising, thus allowing 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, income growth and housing activity typically slow 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.

•GDP declined 1.4% on an annualized basis during the first quarter of 2022. We currently expect GDP growth in 2022, as we expect the factors that contributed to the decline in the first quarter will not persist for the remainder of the year. We expect that a modest recession is likely to occur after this year, most likely in the second half of 2023, resulting in an increase in the unemployment rate. We expect our economic outlook will be influenced by a number of factors that are subject to change, such as the persistence of inflationary pressures, the speed at which expected monetary policy tightening is adjusted, the impact of the Russian invasion of


Fannie Mae First Quarter 2022 Form 10-Q						8


			MD&A \| Key Market Economic Indicators

Ukraine on the global economy, the continuance of supply chain disruptions, the degree to which labor supply expands, and the impact of the potential emergence of new, more infectious variants of the coronavirus.

See “Risk Factors” in this report and “Risk Factors—Market and Industry Risk” in our 2021 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.

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,

			2022		2021		Variance
		(Dollars in millions)
Net interest income			$	7,399	$	6,742	$	657
Fee and other income			83		87		(4)
Net revenues			7,482		6,829		653
Investment gains (losses), net			(102)		45		(147)
Fair value gains, net			480		784		(304)
Administrative expenses			(808)		(748)		(60)
Credit-related income (expense):
Benefit (provision) for credit losses			(240)		765		(1,005)
Foreclosed property income			39		5		34
Total credit-related income (expense)			(201)		770		(971)
TCCA fees(1)			(824)		(731)		(93)
Credit enhancement expense(2)			(278)		(284)		6
Change in expected credit enhancement recoveries(3)			60		(31)		91
Other expenses, net(4)			(236)		(319)		83
Income before federal income taxes			5,573		6,315		(742)
Provision for federal income taxes			(1,165)		(1,322)		157
Net income			$	4,408	$	4,993	$	(585)
Total comprehensive income			$	4,401	$	4,966	$	(565)

(1)TCCA fees refers to the expense recognized as a result of the 10 basis point increase in guaranty fees on all single-family residential mortgages delivered to us on or after April 1, 2012 pursuant to the Temporary Payroll Tax Cut Continuation Act of 2011 and as extended by the Infrastructure Investment and Jobs Act, which we remit to Treasury. For more information on TCCA fees, see "Note 1, Summary of Significant Accounting Policies—Related Parties—Transactions with Treasury."

(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)Includes estimated changes in benefits from our freestanding credit enhancements as well as 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.


Fannie Mae First Quarter 2022 Form 10-Q						9


			MD&A \| Consolidated Results of Operations

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 price 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 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.

We recognize fair value changes attributable to movements in benchmark interest rates for mortgage loans and funding debt, and for related interest-rate swaps in hedging relationships, as a component of net interest income, including the amortization of hedge-related basis adjustments on mortgage loans or funding debt and any related interest accrual on the swaps. The income or expense associated with this activity is presented in the “Income from hedge accounting” line item in the table below. See “MD&A—Consolidated Results of Operations—Hedge Accounting Impact” and “Note 1, Summary of Significant Accounting Policies” in our 2021 Form 10-K for more information about our hedge accounting program.


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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,
			2022		2021		Variance
		(Dollars in millions)
Net interest income from guaranty book of business:
Base guaranty fee income(1)			$	3,897	$	3,197	$	700
Base guaranty fee income related to TCCA fees(2)			824		731		93
Net amortization income(3)			2,374		2,526		(152)
Total net interest income from guaranty book of business			7,095		6,454		641
Net interest income from portfolios(4)			242		266		(24)
Income from hedge accounting			62		22		40
Total net interest income			$	7,399	$	6,742	$	657

Income from hedge accounting included in net interest income:
Fair value losses on designated risk management derivatives in fair value hedges			$	(1,297)	$	(1,178)	$	(119)
Fair value gains on hedged mortgage loans held for investment and debt of Fannie Mae(5)			1,385		1,159		226
Contractual interest income accruals related to interest-rate swaps designated as hedging instruments			39		54		(15)
Discontinued hedge-related basis adjustment amortization			(65)		(13)		(52)
Total income from hedge accounting in net interest income			$	62	$	22	$	40

(1)Excludes 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.

(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.

(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 as 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)Includes interest income from assets held in our retained mortgage portfolio and our other investments portfolio, as well as other assets used to support lender liquidity. Also includes interest expense on our outstanding Connecticut Avenue Securities debt.

(5)Amounts are recorded as cost basis adjustments on the hedged loans or debt and amortized over the hedged item’s remaining contractual life beginning at the termination of the hedging relationship. See “Note 8, Derivative Instruments” for additional information on the effect of our fair value hedge accounting program and related disclosures.

Net interest income increased in the first quarter of 2022 compared with the first quarter of 2021, driven by higher base guaranty fee income, partially offset by lower net amortization income.

•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 for the first quarter of 2022 compared to the first quarter of 2021.

•Lower net amortization income. Throughout the first quarter of 2022 we were in a higher interest-rate environment and observed lower volumes of refinancing activity compared with the first quarter of 2021. Lower prepayment volumes result in a slower turnover of our book of business. As a result, we had lower amortization income in the first quarter of 2022 compared with the first quarter of 2021.

We expect refinancing activity to be significantly lower throughout 2022 compared with 2021 levels as we expect interest rates to remain elevated throughout 2022, resulting in fewer borrowers who may benefit from refinancing. As a result, we expect lower amortization income in 2022 compared with 2021.


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			MD&A \| Consolidated Results of Operations

Analysis of Net Interest Income

The table below displays an analysis of our net interest income, average balances and related yields earned on assets and incurred on liabilities. For most components of the average balances, we use a daily weighted average of unpaid principal balance net of unamortized cost basis adjustments. When daily average balance information is not available, such as for mortgage loans, we use monthly averages.


Analysis of Net Interest Income and Yield(1)
	For the Three Months Ended March 31,
	2022						2021
	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	$	65,984	$	629	3.81	%	$	109,537	$	825	3.01	%
Mortgage loans of consolidated trusts	3,955,055		26,513		2.68		3,600,116		22,528		2.50
Total mortgage loans(2)	4,021,039		27,142		2.70		3,709,653		23,353		2.52
Mortgage-related securities	5,476		23		1.68		7,403		42		2.27
Non-mortgage-related securities(3)	151,841		143		0.38		164,404		117		0.28
Securities purchased under agreements to resell or similar arrangements	20,372		6		0.12		60,103		8		0.05
Advances to lenders	6,957		26		1.49		10,965		42		1.53
Total interest-earning assets	$	4,205,685	$	27,340	2.60	%	$	3,952,528	$	23,562	2.38	%
Interest-bearing liabilities:
Short-term funding debt	$	4,922	$	(1)	0.08	%	$	9,779	$	(3)	0.12	%
Long-term funding debt	173,420		(550)		1.27		259,737		(760)		1.17
CAS debt	10,846		(119)		4.39		14,804		(153)		4.13
Total debt of Fannie Mae	189,188		(670)		1.42		284,320		(916)		1.29
Debt securities of consolidated trusts held by third parties	3,966,445		(19,271)		1.94		3,643,848		(15,904)		1.75
Total interest-bearing liabilities	$	4,155,633	$	(19,941)	1.92	%	$	3,928,168	$	(16,820)	1.71	%
Net interest income/net interest yield			$	7,399	0.70	%			$	6,742	0.68	%

(1)Includes the effects of discounts, premiums and other cost basis adjustments.

(2)Average balance includes mortgage loans on nonaccrual status. Interest income from yield maintenance revenue and the amortization of loan fees, primarily consisting of upfront cash fees, was $1.8 billion for the first quarter of 2022, compared to $2.5 billion for the first quarter of 2021.

(3)Consists of cash, cash equivalents and U.S. Treasury securities.


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			MD&A \| Consolidated Results of Operations

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 amortization income in future periods.

Deferred Amortization 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 below in “Impact of Hedge Accounting on Fair Value Gains (Losses), Net,” we apply fair value hedge accounting to reduce earnings volatility in our financial statements driven by changes in interest rates. Accordingly, we recognize the fair value gains and losses and the contractual interest income and expense associated with risk management derivatives designated in qualifying hedging relationships in net interest income.

The table below displays the components of our fair value gains and losses, which includes the impact of hedge accounting.


Fair Value Gains (Losses), Net
	For the Three Months Ended March 31,
	2022		2021
	(Dollars in millions)
Risk management derivatives fair value gains (losses) attributable to:
Net contractual interest income on interest-rate swaps	$	28	$	43
Net change in fair value during the period	(1,483)		(1,011)


Impact of hedge accounting	1,258		1,124
Risk management derivatives fair value gains (losses), net	(197)		156
Mortgage commitment derivatives fair value gains, net	1,572		1,082
Credit enhancement derivatives fair value losses, net	(22)		(90)
Total derivatives fair value gains, net	1,353		1,148
Trading securities losses, net	(1,770)		(758)
Long-term debt fair value gains, net(1)	1,079		373
Other, net(2)	(182)		21
Fair value gains, net	$	480	$	784

(1)Consists of fair value gains and losses on CAS and non-CAS debt held at fair value.

(2)Consists of fair value gains and losses on foreign exchange debt and mortgage loans held at fair value.


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			MD&A \| Consolidated Results of Operations

Fair value gains, net in the first quarter of 2022 were primarily driven by:

•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 due to rising interest rates and widening of the secondary spread, which is the spread between the 30-year MBS current coupon yield and 10-year U.S. Treasury rate; and

•gains on the fair value of long-term debt of consolidated trusts held at fair value, also due to rising interest rates and widening of the secondary spread.

These gains were partially offset by fair value losses in the first quarter of 2022 on trading securities, primarily driven by 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 gains, net in the first quarter of 2021 were primarily driven by:

•gains on the fair value of long-term debt of consolidated trusts held at fair value, due to increases in interest rates.

These gains were partially offset by fair value losses in the first quarter of 2021 on trading securities, primarily driven by increases in U.S. Treasury yields during the period, which resulted in losses on fixed-rate securities held in our other investments portfolio.

Impact of Hedge Accounting on Fair Value Gains (Losses), Net

Our earnings can experience volatility due to interest-rate changes and differing accounting treatments that apply to certain financial instruments on our balance sheet. 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 specified benchmark interest rates. 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. For additional discussion on the purpose and structure of our hedge accounting program, see “Risk Management—Market Risk Management, including Interest-Rate Risk Management—Earnings Exposure to Interest-Rate Risk.”

The table below displays the amount of contractual interest accruals and fair value losses related to designated interest-rate swaps in qualifying hedging relationships that are recognized in “Net interest income” rather than “Fair value gains (losses), net” as a result of hedge accounting. Derivatives not in hedging relationships are not affected.


Impact of Hedge Accounting on Fair Value Gains (Losses), Net
	For the Three Months Ended March 31,
	2022		2021
	(Dollars in millions)
Net contractual interest income accruals related to interest-rate swaps designated as hedging instruments recognized in net interest income	$	39	$	54
Fair value losses on derivatives designated as hedging instruments recognized in net interest income	(1,297)		(1,178)
Fair value losses, net recognized in net interest income from hedge accounting	$	(1,258)	$	(1,124)

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, volume and effectiveness 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”).

In recent periods, changes in actual and projected interest rates have been a significant driver of our credit-related income (expense) as these changes drive prepayment speeds, which impacts the measurement of the economic concessions granted to borrowers on modified loans. However, pursuant to our adoption of Accounting Standards Update (“ASU”) 2022-02 on January 1, 2022, we prospectively discontinued troubled debt restructuring (“TDR”) accounting and no longer measure the economic concession for restructurings occurring on or after the adoption date. This accounting will also result in the elimination of any existing economic concession related to a loan that was previously designated as a TDR if such loan is restructured on or after January 1, 2022. As a result, we expect that


Fannie Mae First Quarter 2022 Form 10-Q						14


			MD&A \| Consolidated Results of Operations

changes in actual and projected interest rates will have less impact on our credit related income (expense) in future periods. See “Note 1, Summary of Significant Accounting Policies—New Accounting Guidance” and “Note 3, Mortgage Loans” for more information about our adoption of ASU 2022-02.

Our credit-related income or expense and our related loss reserves can also be impacted by updates to the models, assumptions and data used in determining our allowance for loan losses. 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. See “Critical Accounting Estimates” for additional information about how our estimate of credit losses is subject to uncertainty.

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. 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,
			2022		2021
		(Dollars in millions)
Single-family benefit (provision) for credit losses:
Changes in loan activity(1)(2)			$	(339)	$	(63)
Redesignation of loans from HFI to HFS			50		307
Actual and forecasted home prices			266		1,179
Actual and projected interest rates			(603)		(892)
Release of economic concessions(3)			400		—
Changes in assumptions regarding COVID-19 forbearance and loan delinquencies(2)			—		127
Other(4)			(44)		4
Single-family benefit (provision) for credit losses			(270)		662
Multifamily benefit for credit losses:
Changes in loan activity(1)(2)			(10)		(119)
Actual and projected interest rates			(49)		(19)
Actual and projected economic data			6		315
Estimated impact of the COVID-19 pandemic(2)			—		54
Other(4)			83		(128)
Multifamily benefit for credit losses			30		103
Total benefit (provision) for credit losses			$	(240)	$	765

Change in expected credit enhancement recoveries:(5)
Single-family			$	69	$	(16)
Multifamily			(9)		(22)
Change in expected credit enhancement recoveries for active loans			$	60	$	(38)

(1)Primarily consists of loan acquisitions, liquidations and amortization of modification concessions granted to borrowers and write-offs of amounts determined to be uncollectible. For multifamily, changes in loan activity also includes changes in the allowance due to loan delinquencies and the impact of changes in debt service coverage ratios (“DSCRs”) based on updated property financial information, which is used to assess loan credit quality.

(2)Beginning January 1, 2022, changes in assumptions regarding COVID-19 forbearance and loan delinquencies are included in “Changes in loan activity.”

(3)Represents the benefit from the release of economic concessions related to loans previously designated as TDRs that received loss mitigation arrangements during the quarter due to the adoption of ASU 2022-02.


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			MD&A \| Consolidated Results of Operations

(4)Includes provision for allowance on accrued interest receivable. For single-family, also includes the impact of changes in assumptions as well as changes in the reserve for guaranty losses that are not separately included in the other components. For multifamily, also includes the impact of model enhancements implemented in the first quarter of 2021.

(5)Includes increase (decrease) 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 provision for credit losses in the first quarter of 2022 were a provision for higher actual and projected interest rates partially offset by a benefit from the release of economic concessions.

•Actual and projected interest rates were higher as of March 31, 2022 compared with December 31, 2021. As mortgage rates increase, we expect a decrease in future prepayments on single-family loans, including modified loans accounted for as TDRs. Lower expected prepayments extend the expected lives of these TDR loans, which increases the expected impairment relating to economic concessions provided on them, resulting in a provision for credit losses.

•This was partially offset by a benefit from the release of economic concessions on loans previously designated as TDRs that received loss mitigation arrangements during the quarter. As described above, pursuant to our adoption of accounting guidance ASU 2022-02, we remove from our allowance the prior economic concession recorded on a loan previously designated as a TDR when the loan is modified or receives or extends a loss mitigation arrangement such as a forbearance plan, repayment plan or other loan workout during the period.

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.

•Benefit from the redesignation of certain reperforming single-family loans from HFI to HFS. We redesignated certain reperforming single-family loans from HFI to HFS, as we no longer intended 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 continued to apply its judgment and supplemented 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 remained, 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 provided additional economic stimulus and helped 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 as mortgage interest rates increased in the first quarter of 2021.

Multifamily Benefit for Credit Losses

In the first quarter of 2022, the multifamily benefit for credit losses was the result of a reduction in our credit loss reserves primarily due to strong multifamily market fundamentals.

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


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			MD&A \| Consolidated Results of Operations

projected average property net operating income, which reduced the probability of loan default, 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 continued to apply its judgment and supplemented 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 remained, 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.

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, 2022		December 31, 2021		Variance
	(Dollars in millions)
Assets
Cash and cash equivalents and securities purchased under agreements to resell or similar arrangements	$	54,237	$	63,191	$	(8,954)
Restricted cash and cash equivalents	52,651		66,183		(13,532)
Investments in securities	85,435		89,043		(3,608)
Mortgage loans:
Of Fannie Mae	66,189		66,127		62
Of consolidated trusts	3,990,248		3,907,744		82,504
Allowance for loan losses	(5,899)		(5,629)		(270)
Mortgage loans, net of allowance for loan losses	4,050,538		3,968,242		82,296
Deferred tax assets, net	13,075		12,715		360
Other assets	29,093		29,792		(699)
Total assets	$	4,285,029	$	4,229,166	$	55,863
Liabilities and equity
Debt:
Of Fannie Mae	$	180,169	$	200,892	$	(20,723)
Of consolidated trusts	4,028,628		3,957,299		71,329
Other liabilities	24,474		23,618		856
Total liabilities	4,233,271		4,181,809		51,462
Fannie Mae stockholders’ equity:
Senior preferred stock	120,836		120,836		—
Other net deficit	(69,078)		(73,479)		4,401
Total equity	51,758		47,357		4,401
Total liabilities and equity	$	4,285,029	$	4,229,166	$	55,863

Cash and Cash Equivalents

Cash and cash equivalents declined from December 31, 2021 to March 31, 2022 as we used cash and other short-term liquid assets that accumulated in prior periods, as well as our earnings, to fund our operations and to pay off maturing debt during the first quarter of 2022. For further discussion, see “Liquidity and Capital Management—Liquidity Management.”


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			MD&A \| Consolidated Balance Sheet Analysis

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents declined from December 31, 2021 to March 31, 2022 primarily driven by a decrease in prepayments due to lower refinance volumes for loans of consolidated trusts, resulting in lower cash balances held in trust at period end. For information on our accounting policy for restricted cash and cash equivalents, see “Note 1, Summary of Significant Accounting Policies” in our 2021 Form 10-K.

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, 2022 compared with December 31, 2021, driven by an increase in loan acquisitions 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.”

Debt

The decrease in debt of Fannie Mae from December 31, 2021 to March 31, 2022 was primarily due to the maturity of long-term debt, which was not replaced with new issuances as our funding needs remained low. The increase in debt of consolidated trusts from December 31, 2021 to March 31, 2022 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—Liquidity Management—Debt Funding” for a summary of activity in short-term and long-term debt of Fannie Mae. Also see “Note 7, Short-Term and Long-Term Debt” for additional information on our total outstanding debt.

Stockholders’ Equity

Our stockholders’ equity (also referred to as our net worth) increased to $51.8 billion as of March 31, 2022, compared with $47.4 billion as of December 31, 2021, due to the $4.4 billion in comprehensive income recognized during the first quarter of 2022.

The aggregate liquidation preference of the senior preferred stock increased to $168.9 billion as of March 31, 2022 and will further increase to $173.3 billion as of June 30, 2022 due to the $4.4 billion increase in our net worth during the first quarter of 2022. For more information about how this liquidation preference is determined, see “Business—Conservatorship, Treasury Agreements and Housing Finance Reform—Treasury Agreements—Senior Preferred Stock” in our 2021 Form 10-K and “Liquidity and Capital Management—Capital Management—Capital Activity” in this report.

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.


Fannie Mae First Quarter 2022 Form 10-Q						18


			MD&A \| 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, 2022 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 decrease in our retained mortgage portfolio as of March 31, 2022 compared with December 31, 2021 was primarily due to a decrease in our lender liquidity portfolio driven by sales of Fannie Mae securities and a decline in mortgage refinance activity leading to lower acquisition volumes through the whole loan conduit. This was partially offset by an increase in our loss mitigation portfolio driven by an increase in our purchase of delinquent loans from MBS trusts as they exit COVID-19-related forbearance.


Fannie Mae First Quarter 2022 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 shown above.


Retained Mortgage Portfolio
	As of
	March 31, 2022			December 31, 2021
	(Dollars in millions)
Lender liquidity:
Agency securities(1)		$	27,717		$	34,509
Mortgage loans		13,340			16,174
Total lender liquidity		41,057			50,683
Loss mitigation mortgage loans(2)		41,730			37,601
Other:
Reverse mortgage loans		9,420			9,908
Mortgage loans		3,780			3,954
Reverse mortgage securities(3)		5,863			6,146
Other(4)		900			929


Total other		19,963			20,937
Total retained mortgage portfolio		$	102,750		$	109,221

Retained mortgage portfolio by segment:
Single-family mortgage loans and mortgage-related securities		$	95,704		$	101,518
Multifamily mortgage loans and mortgage-related securities		$	7,046		$	7,703

(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 on nonaccrual status of $10.1 billion and $11.0 billion, and multifamily loans on nonaccrual status of $261 million and $340 million as of March 31, 2022 and December 31, 2021, respectively.

(3)Consists of Fannie Mae and Ginnie Mae reverse mortgage securities.

(4)Consists of private-label and other securities, Fannie Mae-wrapped private-label securities and mortgage revenue bonds.

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. In addition, we are currently required to cap our mortgage assets at $225 billion per instruction from FHFA. See “Business—Conservatorship, Treasury Agreements and Housing Finance Reform” in our 2021 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, 2022, 10% of the notional value of our interest-only securities was $1.9 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.

In support of our loss mitigation strategies, we purchased $6.5 billion of loans from our single-family MBS trusts in the first quarter of 2022, the substantial majority of which were delinquent, compared with $1.5 billion of loans purchased from single-family MBS trusts in the first quarter of 2021. We expect the amount of loans we buy out of trusts will increase in 2022 relative to the prior year as loans exiting COVID-19-related forbearance will lead to an increase in the number of loan modifications. The size of our retained mortgage portfolio will be impacted by the volume of loans we ultimately buy, the timing of those purchases, and the length of time those loans remain in our retained mortgage


Fannie Mae First Quarter 2022 Form 10-Q						20


			MD&A \| Retained Mortgage Portfolio

portfolio. 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—Multifamily Loan Forbearance” 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 exclude Freddie Mac-acquired mortgage loans underlying Freddie Mac securities that we have resecuritized.

Our issuance of structured securities backed in whole or in part by Freddie Mac securities creates additional off-balance sheet exposure. Our guaranty extends to the underlying Freddie Mac security included in the structured security, but we do not have control over the Freddie Mac mortgage loan securitizations. Because we do not have the power to direct matters (primarily the servicing of mortgage loans) that impact the credit risk to which we are exposed, which constitute control of these securitization trusts, we do not consolidate these trusts in our condensed consolidated balance sheet, giving rise to off-balance sheet exposure. We expect our off-balance sheet exposure to Freddie Mac securities to increase as we issue more structured securities backed by Freddie Mac securities in the future. See “Liquidity and Capital Management—Liquidity Management—Off-Balance Sheet Arrangements” and “Note 6, Financial Guarantees” for information regarding our maximum exposure to loss on unconsolidated Fannie Mae MBS and Freddie Mac securities.


Fannie Mae First Quarter 2022 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 90% and 89% of our guaranty book of business as of March 31, 2022 and December 31, 2021, respectively.


Composition of Fannie Mae Guaranty Book of Business
	As of
	March 31, 2022						December 31, 2021
	Single-Family		Multifamily		Total		Single-Family		Multifamily		Total
	(Dollars in millions)
Conventional guaranty book of business(1)	$	3,607,454	$	423,261	$	4,030,715	$	3,536,613	$	419,463	$	3,956,076
Government guaranty book of business(2)	16,080		684		16,764		16,777