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fnm-20230331

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, 2023

☐ 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 14, 2023, 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	60
	Condensed Consolidated Statements of Operations and Comprehensive Income	61
	Condensed Consolidated Statements of Cash Flows	62
	Condensed Consolidated Statements of Changes in Equity	63
	Note 1—Summary of Significant Accounting Policies	64
	Note 2—Consolidations and Transfers of Financial Assets	67
	Note 3—Mortgage Loans	69
	Note 4—Allowance for Loan Losses	81
	Note 5—Investments in Securities	83
	Note 6—Financial Guarantees	85
	Note 7—Short-Term and Long-Term Debt	86
	Note 8—Derivative Instruments	87
	Note 9—Segment Reporting	91
	Note 10—Concentrations of Credit Risk	92
	Note 11—Netting Arrangements	96
	Note 12—Fair Value	97
	Note 13—Commitments and Contingencies	105
	Note 14—Regulatory Capital Requirements	106
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 2023	2
	Legislation and Regulation	3
	Key Market Economic Indicators	4
	Consolidated Results of Operations	8
	Consolidated Balance Sheet Analysis	16
	Retained Mortgage Portfolio	17
	Guaranty Book of Business	19
	Business Segments	20
	Single-Family Business	20
	Single-Family Mortgage Market	20
	Single-Family Mortgage-Related Securities Issuances Share	21
	Single-Family Business Metrics	21
	Single-Family Business Financial Results	23
	Single-Family Mortgage Credit Risk Management	24
	Multifamily Business	35
	Multifamily Mortgage Market	35
	Multifamily Business Metrics	36
	Multifamily Business Financial Results	38
	Multifamily Mortgage Credit Risk Management	38
	Consolidated Credit Ratios and Select Credit Information	43
	Liquidity and Capital Management	44

	Risk Management	51

	Market Risk Management, including Interest-Rate Risk Management	51
	Critical Accounting Estimates	53
	Impact of Future Adoption of New Accounting Guidance	56
	Forward-Looking Statements	56


Fannie Mae First Quarter 2023 Form 10-Q						i


Item 3.	Quantitative and Qualitative Disclosures about Market Risk	108
Item 4.	Controls and Procedures	108
PART II—Other Information		110
Item 1.	Legal Proceedings	110
Item 1A.	Risk Factors	111
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	112
Item 3.	Defaults Upon Senior Securities	113
Item 4.	Mine Safety Disclosures	113
Item 5.	Other Information	113
Item 6.	Exhibits	114


Fannie Mae First Quarter 2023 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.
			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 and Treasury Agreements” and “Risk Factors—GSE and Conservatorship Risk” in our Form 10-K for the year ended December 31, 2022 (“2022 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 2022 Form 10-K. You can find a “Glossary of Terms Used in This Report” in MD&A in our 2022 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” in our 2022 Form 10-K and elsewhere in our 2022 Form 10-K and in this report.

Introduction

Fannie Mae is a leading source of financing for mortgages in the United States. Organized as a government-sponsored entity, Fannie Mae is a shareholder-owned corporation. We were chartered by Congress to provide liquidity and stability to the residential mortgage market and to promote access to mortgage credit. 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 acquire and securitize those loans into mortgage-backed securities that we guarantee (which we refer to as Fannie Mae MBS or our MBS).


Fannie Mae First Quarter 2023 Form 10-Q						1


			MD&A \| Executive Summary

Executive Summary

Summary of Our Financial Performance

•Net revenues decreased $633 million in the first quarter of 2023 compared with the first quarter of 2022, primarily due to lower net amortization income, partially offset by higher income from portfolios.

◦Lower amortization income was driven by a higher interest-rate environment in the first quarter of 2023, which slowed refinancing activity, driving significantly lower loan prepayment volumes compared with the first quarter of 2022.

◦Higher income from portfolios was primarily driven by higher interest rates in the first quarter of 2023 than in the first quarter of 2022 on securities in our other investments portfolio.

•Net income decreased $636 million for the first quarter of 2023 compared with the first quarter of 2022, driven primarily by lower net revenues and a decrease in fair value gains, partially offset by a decrease in provision for credit losses in the first quarter of 2023 compared with the first quarter of 2022.

•Net worth increased to $64.0 billion as of March 31, 2023 from $60.3 billion as of December 31, 2022. The increase is attributable to $3.8 billion of comprehensive income for the first quarter of 2023.

Liquidity Provided in the First Quarter of 2023

Through our single-family and multifamily business segments, we provided $78 billion in liquidity to the mortgage market in the first quarter of 2023, enabling the financing of approximately 306,000 home purchases, refinancings and rental units.

Fannie Mae Provided $78 Billion in Liquidity in the First Quarter of 2023

Unpaid Principal Balance

Units

$57B

170K

Single-Family Home Purchases

$11B

45K

Single-Family Refinancings

$10B

91K

Multifamily Rental Units


Fannie Mae First Quarter 2023 Form 10-Q						2


			MD&A \| Legislation and Regulation

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 and Treasury Agreements” and “Business—Legislation and Regulation” in our 2022 Form 10-K. Also see “Risk Factors” in our 2022 Form 10-K for discussions of risks relating to legislative and regulatory matters.

Enterprise Regulatory Capital Framework: Proposed Amendments

On February 23, 2023, FHFA announced that it is seeking comment on a notice of proposed rulemaking that would amend several provisions in the enterprise regulatory capital framework applicable to Fannie Mae and Freddie Mac. Key proposed changes include:

•A reduction in the risk weight for guarantees on commingled securities from 20% to 5%, and a reduction in the credit conversion factor for such guarantees from 100% to 50%;

•A reduction in the risk multiplier for multifamily mortgage exposures associated with properties with certain government subsidies, from 1.0 to 0.6;

•A standardized approach for counterparty credit risk as the method for calculating replacement costs and potential future exposures for derivatives contracts; and

•A modified procedure for determining a representative credit score for single-family mortgage exposures.

The proposed rule would also extend to January 1, 2028 the compliance date for the advanced approaches of the enterprise regulatory capital framework. Comments on the proposed rule are due on May 12, 2023.

Equitable Housing Finance Plan

On April 5, 2023, we released the 2023 annual update to our 2022-2024 Equitable Housing Finance Plan. Our updated Equitable Housing Finance Plan focuses on two key objectives that address common obstacles faced by many Black and Latino renters and homeowners:

•Reducing up-front rental and homeownership costs, and eliminating outdated barriers to accessing credit, to directly drive meaningful and measurable improvements in housing access and stability, and

•Improving the opportunities for long-term success for underserved borrowers and renters by focusing on education and counseling, successfully navigating the mortgage process, and housing stability.

FHFA Proposed Rulemaking on Fair Lending Oversight

On April 19, 2023, FHFA announced that it is seeking comment on a proposed rule that would formalize many of FHFA’s existing practices and programs regarding fair housing and fair lending oversight of Fannie Mae. The proposed rule would codify in regulation:

•FHFA’s fair lending oversight requirements;

•the requirements for us to maintain an Equitable Housing Finance Plan; and

•the requirements for us to collect and report homeownership education, housing counseling, and language preference information.

The proposed rule would also require us to comply with the prohibition on unfair or deceptive acts or practices (“UDAP”) under Section 5 of the Federal Trade Commission Act and provide for FHFA’s oversight of UDAP compliance through possible examinations, supervision, and enforcement. The proposed rule would also make changes to the Equitable Housing Finance Plan program. FHFA invited comments on the proposed rule within 60 days of its publication in the Federal Register.

Amendment to Duty to Serve Underserved Markets Rule

On April 12, 2023, FHFA published an amendment to its “duty to serve” rule, effective July 1, 2023. Prior to this amendment, the lack of a uniform definition of “colonia” by federal, state, tribal and local governments hindered us in targeting duty-to-serve activities in unincorporated low-income areas along the U.S.-Mexico border. The amendment addresses that problem by adding a definition for “colonia census tract” and allowing us to be eligible for credit for our duty-to-serve activities in all colonia census tracts.


Fannie Mae First Quarter 2023 Form 10-Q						3


			MD&A \| Legislation and Regulation

Single-Family Social Bond Program Request for Input

On February 16, 2023, FHFA issued a request for input on Fannie Mae and Freddie Mac’s social bond policy. FHFA indicated that the request for input will help FHFA understand the opportunities and potential risks associated with Fannie Mae and Freddie Mac issuing single-family social bonds. FHFA also sought input in defining the criteria and appropriate impact measures for bonds issued by Fannie Mae and Freddie Mac and labeled as single-family social bonds. FHFA invited interested parties to provide written input, feedback, and information on the request for information by May 17, 2023. The impact of any social bond-labeling efforts on our MBS is uncertain.

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. See “Risk Factors” in our 2022 Form 10-K and “Forward-Looking Statements” in this report for a discussion of factors that could cause actual results to differ materially 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

(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 generally prepay more slowly as borrowers are less likely to refinance. We amortize various cost basis adjustments over the life of the mortgage loan, including those relating to certain upfront fees we receive at the time we acquire single-family loans. As a result, 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 generally prepay faster as borrowers are more likely to refinance, typically resulting in the opposite trend of higher amortization income from cost basis adjustments on mortgage loans. Interest rates also affect the amount of interest income we earn on our assets. Our other


Fannie Mae First Quarter 2023 Form 10-Q						4


			MD&A \| Key Market Economic Indicators

investments portfolio and certain mortgage-related assets typically earn more interest income in a higher interest-rate environment and less interest income in a lower interest-rate environment. See “Consolidated Results of Operations—Net Interest Income” for a discussion of how interest rate changes impacted our financial results.

•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.

•Benefit (provision) for credit losses. Increases in mortgage interest rates tend to lengthen the expected lives of our loans as borrowers are less likely to refinance, which generally increases the expected impairment and provision for credit losses on loans. Decreases in mortgage interest rates tend to shorten the expected lives of our loans as borrowers are more likely to refinance, which generally reduces the impairment and provision for credit losses on such loans.

Single-Family Quarterly Home Price Growth (Decline) Rate (1)

(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 non-seasonally adjusted 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, particularly in times of economic stress.

•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 newly acquired purchase loans 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 of 1.0% in the first quarter of 2023 was primarily driven by modest mortgage interest rate declines early in the quarter coupled with low housing supply. However, we expect national home price declines of 1.2% for 2023 overall as affordability constraints continue to exert pressure. This updated expectation for 2023 is a shift from our prior forecast of home price declines of 4.2% for the year. We also expect regional variation in home price changes.


Fannie Mae First Quarter 2023 Form 10-Q						5


			MD&A \| Key Market Economic Indicators

New Housing Starts(1)

(1)According to U.S. Census Bureau and subject to revision.

How Housing Activity Can Affect Our Financial Results

•Housing is among the most interest-rate sensitive sectors of the economy. In addition to interest rates, two key aspects of economic activity that can impact supply and demand for housing, and thus our business and financial results, 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 home prices, multifamily property values 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 U.S. gross domestic product (“GDP”) and employment.

•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 home sales and single-family housing starts will continue to decline through the remainder of 2023 due to elevated mortgage rates, continued low home affordability and an expected modest recession. We also expect continued downward pressure on home sales due to limited supply as a result of existing homeowners' reluctance to give up their low mortgage rates.


Fannie Mae First Quarter 2023 Form 10-Q						6


			MD&A \| Key Market Economic Indicators

GDP, Unemployment Rate and Personal Consumption

(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 impacts 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, income growth and housing activity typically slow as an early indicator of reduced economic activity, followed by slowing employment. 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 increased 1.1% on an annualized basis during the first quarter of 2023. We expect that a modest recession is likely to occur beginning 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 and the risk of further financial market disruptions, including additional stress in the banking sector.

•During the first quarter of 2023, some small and mid-size banks experienced liquidity problems, which contributed to financial stability concerns. Additional stress in the banking sector, particularly for banks with significant exposure to commercial real estate, could further tighten bank credit conditions, dampen consumer and business confidence, and lead to reduced consumer spending, business investment, and hiring activity.

See “Market and Industry Risk” and “Credit Risk” in “Risk Factors” in our 2022 Form 10-K for further discussion of risks to our business and financial results associated with interest rates, home prices, housing activity, economic conditions, and our reliance on institutional counterparties and mortgage servicers.


Fannie Mae First Quarter 2023 Form 10-Q						7


			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,

			2023		2022		Variance
		(Dollars in millions)
Net interest income			$	6,786	$	7,399	$	(613)
Fee and other income			63		83		(20)
Net revenues			6,849		7,482		(633)
Investment losses, net			(67)		(102)		35
Fair value gains, net			204		480		(276)
Administrative expenses			(868)		(808)		(60)
Provision for credit losses			(132)		(240)		108
TCCA fees(1)			(855)		(824)		(31)
Credit enhancement expense(2)			(341)		(278)		(63)
Change in expected credit enhancement recoveries(3)			120		60		60
Other expenses, net(4)			(130)		(197)		67
Income before federal income taxes			4,780		5,573		(793)
Provision for federal income taxes			(1,008)		(1,165)		157
Net income			$	3,772	$	4,408	$	(636)
Total comprehensive income			$	3,772	$	4,401	$	(629)

(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 and certain lender risk-sharing programs.

(3)Includes estimated changes in benefits, as well as any realized amounts, from our freestanding credit enhancements.

(4)Consists of debt extinguishment gains and losses, foreclosed property income (expense), gains and losses from partnership investments, housing trust fund expenses, loan subservicing costs, and servicer fees paid in connection with certain loss mitigation activities.


Fannie Mae First Quarter 2023 Form 10-Q						8


			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 amortization income. Conversely, in a declining interest-rate environment, our mortgage loans tend to prepay faster, typically resulting in higher 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 the effects of hedge accounting as a component of net interest income, as demonstrated in the table below. As of March 31, 2023 and December 31, 2022, we had $3.8 billion and $4.1 billion, respectively, in net cumulative fair value hedge basis adjustments, which will be amortized as net expenses over the remaining contractual life of the respective hedged items in the “Income (expense) from hedge accounting” line item in the table below. The substantial majority of these hedge basis adjustments relate to our funding debt. See “Fair Value Gains (Losses), Net” below and “Note 8, Derivative Instruments” in this report for more information about our hedge accounting program, as well as “Note 1, Summary of Significant Accounting Policies” in our 2022 Form 10-K.


Fannie Mae First Quarter 2023 Form 10-Q						9


			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,
		2023		2022		Variance
		(Dollars in millions)
Net interest income from guaranty book of business:
Base guaranty fee income(1)		$	3,992	$	3,897	$	95
Base guaranty fee income related to TCCA(2)		855		824		31
Net amortization income(3)		781		2,374		(1,593)
Total net interest income from guaranty book of business		5,628		7,095		(1,467)
Net interest income from portfolios(4)		1,390		242		1,148
Income (expense) from hedge accounting		(232)		62		(294)
Total net interest income		$	6,786	$	7,399	$	(613)

Income (expense) from hedge accounting included in net interest income:
Fair value gains (losses) on designated risk management derivatives in fair value hedges		$	218	$	(1,297)	$	1,515
Fair value gains (losses) on hedged mortgage loans held for investment and debt of Fannie Mae(5)		(62)		1,385		(1,447)
Contractual interest income (expense) accruals related to interest-rate swaps designated as hedging instruments		(203)		39		(242)
Discontinued hedge-related basis adjustment amortization		(185)		(65)		(120)
Total income (expense) from hedge accounting in net interest income		$	(232)	$	62	$	(294)

(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 primarily 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 (expense) 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 decreased in the first quarter of 2023 compared with the first quarter of 2022, primarily as a result of lower net amortization income partially offset by higher income from portfolios. More specifically, our net interest income was impacted in the periods by:

•Lower net amortization income. Throughout the first quarter of 2023, we were in a higher interest-rate environment and observed significantly lower volumes of refinancing activity compared with the first quarter 2022, which drove fewer loan prepayments. As a result, we had lower amortization income in the first quarter of 2023 compared with the first quarter of 2022. For a description of how fewer loan prepayments results in lower amortization income, refer to “Key Market Economic Indicators—How Interest Rates Can Affect Our Financial Results—Net Interest Income.”

•Higher income from portfolios. Higher income from portfolios in the first quarter of 2023 compared with the first quarter of 2022 was primarily driven by higher interest rates in the first quarter of 2023 than in the first quarter of 2022 on securities in our other investments portfolio, primarily U.S. Treasuries and securities purchased under agreements to resell. This was partially offset by higher interest expense on funding debt, also as a result of higher interest rates. See “Liquidity and Capital Management—Liquidity Management—Other Investments Portfolio” for more information about our other investments portfolio.


Fannie Mae First Quarter 2023 Form 10-Q						10


			MD&A \| Consolidated Results of Operations

We expect significantly lower amortization income in 2023 compared with 2022, driven by our expectation that refinancing activity will remain low, as we expect most single-family loans in our guaranty book of business will continue to have interest rates significantly lower than current market rates. However, we expect the decline in our amortization income in 2023 to be partially offset by higher interest income on our other investments portfolio.

As of March 31, 2023, the U.S. weekly average interest rate for a single-family 30-year fixed-rate mortgage was 6.32%, according to Freddie Mac’s Primary Mortgage Market Survey®. Over 90% of our single-family conventional guaranty book of business as of March 31, 2023 had an interest rate below 5.50%, resulting in a low likelihood these loans would refinance at current rates. In addition, approximately 75% of our single-family conventional guaranty book of business as of March 31, 2023 had an interest rate below 4.00%. Accordingly, even if interest rates decline meaningfully from current levels, most of the borrowers whose loans are in our single-family conventional guaranty book of business still would not be incentivized to refinance.

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,
	2023						2022
	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	$	52,671	$	607	4.61	%	$	65,984	$	629	3.81	%
Mortgage loans of consolidated trusts	4,072,953		31,530		3.10		3,955,055		26,513		2.68
Total mortgage loans(2)	4,125,624		32,137		3.12		4,021,039		27,142		2.70
Investments in securities(3)	115,831		981		3.39		157,317		166		0.42
Securities purchased under agreements to resell	36,748		418		4.55		20,372		6		0.12
Advances to lenders	2,367		34		5.75		6,957		26		1.49
Total interest-earning assets	$	4,280,570	$	33,570	3.14	%	$	4,205,685	$	27,340	2.60	%
Interest-bearing liabilities:
Short-term funding debt	$	10,601	$	(119)	4.49	%	$	4,922	$	(1)	0.08	%
Long-term funding debt	118,454		(808)		2.73		173,420		(550)		1.27
CAS debt	5,139		(123)		9.57		10,846		(119)		4.39
Total debt of Fannie Mae	134,194		(1,050)		3.13		189,188		(670)		1.42
Debt securities of consolidated trusts held by third parties	4,077,130		(25,734)		2.52		3,966,445		(19,271)		1.94
Total interest-bearing liabilities	$	4,211,324	$	(26,784)	2.54	%	$	4,155,633	$	(19,941)	1.92	%
Net interest income/net interest yield			$	6,786	0.63	%			$	7,399	0.70	%

(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 $664 million for the first quarter of 2023, compared with $1.8 billion for the first quarter of 2022.

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


Fannie Mae First Quarter 2023 Form 10-Q						11


			MD&A \| Consolidated Results of Operations

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)

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.

We apply fair value hedge accounting to reduce earnings volatility in our financial statements driven by changes in benchmark 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. For more information, see “Impact of Hedge Accounting on Fair Value Gains (Losses), Net” below.

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,
		2023		2022
		(Dollars in millions)
Risk management derivatives fair value gains (losses) attributable to:
Net contractual interest income (expense) on interest-rate swaps		$	(381)	$	28
Net change in fair value during the period		187		(1,483)


Impact of hedge accounting		(15)		1,258
Risk management derivatives fair value losses, net		(209)		(197)
Mortgage commitment derivatives fair value gains (losses), net		(114)		1,572
Credit enhancement derivatives fair value losses, net		(15)		(22)
Total derivatives fair value gains (losses), net		(338)		1,353
Trading securities gains (losses), net		746		(1,770)
Long-term debt fair value gains (losses), net		(269)		1,079
Other, net(1)		65		(182)
Fair value gains, net		$	204	$	480

(1)Consists primarily of fair value gains and losses on mortgage loans held at fair value.


Fannie Mae First Quarter 2023 Form 10-Q						12


			MD&A \| Consolidated Results of Operations

Fair value gains, net in the first quarter of 2023 were primarily driven by gains on fixed-rate trading securities, primarily U.S. Treasuries, held in our other investments portfolio. Declines in interest rates during the quarter, particularly medium- and longer-term rates, drove higher prices on these securities. These gains were partially offset by losses on:

•long-term debt of consolidated trusts held at fair value as prices rose due to declining medium- and longer-term interest rates during the quarter; and

•risk management derivatives as interest expense accruals on our swap contracts increased due to rising short-term interest rates during the quarter.

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, 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 apply hedge accounting 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 information on our hedge accounting program, see “Risk Management—Market Risk Management, including Interest-Rate Risk Management—Earnings Exposure to Interest-Rate Risk” in our 2022 Form 10-K and in this report and “Note 8, Derivative Instruments” in this report. For additional discussion of our fair value hedge accounting policy, see “Note 1, Summary of Significant Accounting Policies” in our 2022 Form 10-K.

The table below displays the amount of contractual interest accruals and fair value gains and losses related to designated interest-rate swaps in qualifying hedging relationships that are recognized in “Net interest income” rather than “Fair value gains, net” in our condensed consolidated statements of operations and comprehensive income 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,
		2023		2022
		(Dollars in millions)
Net contractual interest income (expense) accruals related to interest-rate swaps designated as hedging instruments recognized in net interest income		$	(203)	$	39
Fair value gains (losses) on derivatives designated as hedging instruments recognized in net interest income		218		(1,297)
Fair value gains (losses), net recognized in net interest income (expense) from hedge accounting		$	15	$	(1,258)

Benefit (Provision) for Credit Losses

Our benefit or provision for credit losses 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 volume and pricing of loans redesignated from held for investment (“HFI”) to held for sale (“HFS”). The benefit or provision for credit losses includes our benefit or provision for loan losses, accrued interest receivable losses, our guaranty loss reserves, and credit losses on our available-for-sale (“AFS”) debt securities.


Fannie Mae First Quarter 2023 Form 10-Q						13


			MD&A \| Consolidated Results of Operations

Our benefit or provision for credit losses 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 as of March 31, 2023 are reasonable, they are subject to uncertainty. Changes in future economic conditions and loan performance from our current expectations may result in volatility in our allowance for loan losses and, as a result, our benefit or provision for credit losses. See “Critical Accounting Estimates” for additional information about how our estimate of credit losses is subject to uncertainty.

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. 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,
			2023		2022
		(Dollars in millions)
Single-family benefit (provision) for credit losses:
Changes in loan activity(1)			$	(350)	$	(339)
Redesignation of loans from HFI to HFS			—		50
Actual and forecasted home prices			380		266
Actual and projected interest rates			122		(603)
Release of economic concessions(2)			27		400
Other(3)			(132)		(44)
Single-family benefit (provision) for credit losses			47		(270)
Multifamily benefit (provision) for credit losses:
Changes in loan activity(1)			(10)		(10)
Actual and projected interest rates			73		(49)
Actual and projected economic data			(182)		6
Other(3)			(60)		83
Multifamily benefit (provision) for credit losses			(179)		30
Total provision for credit losses(4)			$	(132)	$	(240)

Change in expected credit enhancement recoveries for active loans:
Single-family			$	95	$	69
Multifamily			18		(9)
Change in expected credit enhancement recoveries for active loans			$	113	$	60

(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)Represents the benefit from the release of economic concessions related to loans previously designated as troubled debt restructurings that received loss mitigation arrangements during the period, pursuant to Accounting Standards Update 2022-02, Financial Instruments – Credit Losses, Troubled Debt Restructurings and Vintage Disclosures.

(3)Includes provision for allowance on accrued interest receivable. For single-family, also includes any benefit or provision for our guaranty loss reserves that are not separately included in the other components.

(4)For purposes of this attribution table, credit losses on AFS securities are excluded.


Fannie Mae First Quarter 2023 Form 10-Q						14


			MD&A \| Consolidated Results of Operations

Single-Family Benefit (Provision) for Credit Losses

We recognized a modest single-family benefit for credit losses in the first quarter of 2023, primarily driven by a benefit from actual and forecasted home price growth, substantially offset by a provision from changes in loan activity, as described in more detail below:

•Benefit from actual and forecasted home price growth. During the first quarter of 2023, we observed modest actual home price appreciation. In addition, our updated 2023 home price forecast changed from our prior estimate, resulting in a lower estimate of home price declines for the year. Higher home prices decrease the likelihood that loans will default and reduce the amount of losses on loans that do default, which impacts our estimate of losses and ultimately reduces our loss reserves and provision for credit losses.

•Provision from changes in loan activity, which includes provision on newly acquired loans. The portion of our single-family acquisitions consisting of purchase loans increased in the first quarter of 2023 compared with the first quarter of 2022. As we shift to more purchase loans, which generally have higher origination loan to value (“LTV”) ratios than refinance loans, the credit profile of our acquisitions weakens. In addition, the average original LTV ratio of purchase loans acquired in the first quarter of 2023 was higher than for purchase loan acquisitions in the first quarter of 2022. These factors drove a higher estimated risk of default and loss severity in the allowance and therefore a higher credit loss provision for those loans at the time of acquisition. See “Single-Family Business—Single-Family Mortgage Credit Risk Management” for more information on our single-family loan acquisitions in the first quarter of 2023.

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, as described in more detail below:

•Provision from actual and projected interest rates. Interest rates were higher as of March 31, 2022 compared with December 31, 2021. As mortgage rates increased, we expected a decrease in future prepayments on single-family loans, including modified loans accounted for as troubled debt restructurings (“TDRs”). Lower expected prepayments extended the expected lives of these TDR loans, which increased the expected impairment relating to economic concessions provided on them, resulting in a provision for credit losses.

•Benefit from the release of economic concessions on loans previously designated as TDRs that received loss mitigation arrangements during the quarter. Pursuant to Accounting Standards Update (“ASU”) 2022-02, Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), we removed from our allowance the prior economic concession recorded on a loan previously designated as a TDR when the loan was modified or received or extended a loss mitigation arrangement such as a forbearance plan, repayment plan or other loan workout during the period. See “Note 1, Summary of Significant Accounting Policies” in our 2022 Form 10-K for additional information about ASU 2022-02.

Multifamily Benefit (Provision) for Credit Losses

The primary factors that contributed to our multifamily provision for credit losses for the first quarter of 2023 were:

•Provision for actual and projected economic data, which was primarily driven by decreases in multifamily actual and projected property values. This resulted in higher estimated LTV ratios, which increased our estimate of expected credit losses.

•Provision from other, which primarily consists of a provision relating to seniors housing loans in our multifamily guaranty book of business. In the first quarter of 2023, uncertainty related to our seniors housing loans remained elevated, including uncertainty related to adjustable-rate loans.

The impact of these factors was partially offset by the following, which reduced our multifamily provision for credit losses:

•Benefit from actual and projected interest rates. Actual and projected interest rates decreased as of March 31, 2023 compared with December 31, 2022, which reduced the probability of default resulting in a 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.


Fannie Mae First Quarter 2023 Form 10-Q						15


			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, 2023		December 31, 2022		Variance
	(Dollars in millions)
Assets
Cash and cash equivalents and securities purchased under agreements to resell	$	87,280	$	72,552	$	14,728
Restricted cash and cash equivalents	30,507		29,854		653
Investments in securities, at fair value	51,089		50,825		264
Mortgage loans:
Of Fannie Mae	52,154		54,085		(1,931)
Of consolidated trusts	4,069,516		4,071,698		(2,182)
Allowance for loan losses	(11,335)		(11,347)		12
Mortgage loans, net of allowance for loan losses	4,110,335		4,114,436		(4,101)
Deferred tax assets, net	12,615		12,911		(296)
Other assets	25,634		24,710		924
Total assets	$	4,317,460	$	4,305,288	$	12,172
Liabilities and equity
Debt:
Of Fannie Mae	$	139,164	$	134,168	$	4,996
Of consolidated trusts	4,091,602		4,087,720		3,882
Other liabilities	22,645		23,123		(478)
Total liabilities	4,253,411		4,245,011		8,400
Fannie Mae stockholders’ equity:
Senior preferred stock	120,836		120,836		—
Other net deficit	(56,787)		(60,559)		3,772
Total equity	64,049		60,277		3,772
Total liabilities and equity	$	4,317,460	$	4,305,288	$	12,172

Cash and Cash Equivalents

Cash and cash equivalents increased from December 31, 2022 to March 31, 2023 primarily driven by proceeds from debt issuances, the sale of securities and loans as well as paydowns on mortgage loans. For further discussion, see “Liquidity and Capital Management—Liquidity Management.”

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 modestly declined from December 31, 2022 to March 31, 2023, driven primarily by acquisition volumes being lower than loan paydowns during the quarter.

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 increase in debt of Fannie Mae from December 31, 2022 to March 31, 2023 was due to new issuances outpacing redemptions. The increase in debt of consolidated trusts from December 31, 2022 to March 31, 2023 was primarily driven by sales of Fannie Mae MBS, which also includes sales of Fannie Mae MBS that were previously held in our retained mortgage portfolio. Sales of Fannie Mae MBS are accounted for as issuances of debt of consolidated trusts in


Fannie Mae First Quarter 2023 Form 10-Q						16


			MD&A \| Consolidated Balance Sheet Analysis

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 $64.0 billion as of March 31, 2023, compared with $60.3 billion as of December 31, 2022, due to the $3.8 billion in comprehensive income recognized during the first quarter of 2023.

The aggregate liquidation preference of the senior preferred stock increased to $181.8 billion as of March 31, 2023 due to the $1.4 billion increase in our net worth in the fourth quarter of 2022. The aggregate liquidation preference of the senior preferred stock will further increase to $185.5 billion as of June 30, 2023 due to the $3.8 billion increase in our net worth in the first quarter of 2023. For more information about how this liquidation preference is determined, see “Business—Conservatorship and Treasury Agreements—Treasury Agreements—Senior Preferred Stock” in our 2022 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.

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, 2023 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)

The decrease in our retained mortgage portfolio as of March 31, 2023 compared with December 31, 2022 was primarily driven by sales of agency securities from our lender liquidity portfolio and sales of loans from our loss mitigation portfolio.


Fannie Mae First Quarter 2023 Form 10-Q						17


			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, at Fair Value” or “Mortgage Loans, Net of Allowance” in our “Summary of Condensed Consolidated Balance Sheets” table above.


Retained Mortgage Portfolio
	As of
	March 31, 2023			December 31, 2022
	(Dollars in millions)
Lender liquidity:
Agency securities(1)		$	13,330		$	16,410
Mortgage loans		8,147			7,329
Total lender liquidity		21,477			23,739
Loss mitigation mortgage loans(2)		36,179			38,458
Other:
Reverse mortgage loans(3)		5,820			6,565
Mortgage loans		3,272			3,365
Reverse mortgage securities(4)		4,294			4,811
Other(5)		781			804


Total other		14,167			15,545
Total retained mortgage portfolio		$	71,823		$	77,742

Retained mortgage portfolio by segment:
Single-family mortgage loans and mortgage-related securities		$	67,521		$	73,769
Multifamily mortgage loans and mortgage-related securities		$	4,302		$	3,973

(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 $6.6 billion and $7.1 billion as of March 31, 2023 and December 31, 2022, respectively. Also includes multifamily loans on nonaccrual status of $273 million and $243 million as of March 31, 2023 and December 31, 2022, respectively.

(3)We stopped acquiring newly originated reverse mortgage loans in 2010.

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

(5) 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 $225 billion under the terms of our senior preferred stock purchase agreement with Treasury. In addition, we are currently required to cap our mortgage assets at $202.5 billion per instructions from FHFA. See “Business—Conservatorship and Treasury Agreements” in our 2022 Form 10-K for additional information on our mortgage assets cap.

We include 10% of the notional value of the interest-only securities we hold 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, 2023, 10% of the notional value of our interest-only securities was $1.7 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.

In support of our loss mitigation strategies, we purchased $2.1 billion of loans from our single-family MBS trusts in the first quarter of 2023, the substantial majority of which were delinquent, compared with $6.5 billion of loans purchased from single-family MBS trusts in the first quarter of 2022. We expect the amount of loans we buy out of trusts will decrease in 2023 relative to the prior year as loans exiting COVID-19-related forbearance drove a higher number of loan modifications in 2022. 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 portfolio.


Fannie Mae First Quarter 2023 Form 10-Q						18


			MD&A \| Guaranty Book of Business

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. See “Business—Mortgage Securitizations—Uniform Mortgage-Backed Securities, or UMBS—UMBS and Structured Securities” in our 2022 Form 10-K for information regarding the upfront fee we charge to include Freddie Mac securities in our structured securities. Effective April 1, 2023, the upfront fee for commingled securities decreased from 50 basis points to 9.375 basis points on the portion of the securities made up of Freddie Mac-issued collateral. 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. 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.

The table below displays the composition of our guaranty book of business based on unpaid principal balance.


Composition of Fannie Mae Guaranty Book of Business
	As of
	March 31, 2023						December 31, 2022
	Single-Family		Multifamily		Total		Single-Family		Multifamily		Total
	(Dollars in millions)
Conventional guaranty book of business(1)	$	3,643,245	$	446,859	$	4,090,104	$	3,646,981	$	442,067	$	4,089,048
Government guaranty book of business(2)	11,403		559		11,962		12,450		572		13,022
Guaranty book of business	3,654,648		447,418		4,102,066		3,659,431		442,639		4,102,070
Freddie Mac securities guaranteed by Fannie Mae(3)	229,273		—		229,273		234,023		—		234,023
Total Fannie Mae guarantees	$	3,883,921	$	447,418	$	4,331,339	$	3,893,454	$	442,639	$	4,336,093

(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 off-balance sheet arrangements of approximately (i) $190.0 billion and $193.9 billion in unpaid principal balance of Freddie Mac-issued UMBS backing Fannie Mae-issued Supers as of March 31, 2023 and December 31, 2022, respectively; and (ii) $39.3 billion and $40.1 billion in unpaid principal balance of Freddie Mac securities backing Fannie Mae-issued REMICs as of March 31, 2023 and December 31, 2022, respectively. See “Liquidity and Capital Management—Liquidity Management—Off-Balance Sheet Arrangements” for more information regarding our maximum exposure to loss on consolidated Fannie Mae MBS and Freddie Mac securities.


Fannie Mae First Quarter 2023 Form 10-Q						19


			MD&A \| Guaranty Book of Business

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended, including by the Housing and Economic Recovery 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 2023, we paid $287 million to the funds based on our new business purchases in 2022. For the first quarter of 2023, we recognized an expense of $33 million related to this obligation based on $77.9 billion in new business purchases during the period. We expect to pay this amount to the funds in 2024, plus additional amounts to be accrued based on our new business purchases in the remaining nine months of 2023. See “Business—Legislation and Regulation—GSE-Focused Matters—Affordable Housing Allocations” in our 2022 Form 10-K for more information regarding this obligation.

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 net revenues and net income for each of our business segments for the first quarter of 2023 compared with the first quarter of 2022. Net revenues consist of net interest income and fee and other income.

Business Segment Net Revenues and Net Income

(Dollars in billions)

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 2022 Form 10-K.

Single-Family Business

This section supplements and updates information regarding our Single-Family business segment in our 2022 Form 10-K. See “MD&A—Single-Family Business” in our 2022 Form 10-K for additional information regarding the primary business activities, lenders, investors and competition of our Single-Family business.

Single-Family Mortgage Market

Housing activity increased slightly in the first quarter of 2023 compared with the fourth quarter of 2022. Total existing home sales averaged 4.3 million units annualized in the first quarter of 2023, compared with 4.2 million units in the fourth quarter of 2022, according to data from the National Association of REALTORS®. According to the U.S. Census Bureau, new single-family home sales averaged an annualized rate of approximately 651,000 units in the first quarter of 2023, compared with approximately 598,000 units in the fourth quarter of 2022.

The 30-year fixed mortgage rate was 6.32% as of March 31, 2023, compared with 6.42% as of December 31, 2022, and averaged 6.37% in the first quarter of 2023, compared with 6.66% in the fourth quarter of 2022, according to Freddie Mac’s Primary Mortgage Market Survey®.

Single-family mortgage market originations declined substantially from an estimated $781 billion in the first quarter of 2022 to an estimated $317 billion in the first quarter of 2023. According to the April forecast from our Economic and


Fannie Mae First Quarter 2023 Form 10-Q						20


			MD&A \| Single-Family Business \| Single-Family Mortgage Market

Strategic Research Group, we forecast that total originations in the U.S. single-family mortgage market in 2023 will decrease from 2022 levels by approximately 32%, from an estimated $2.42 trillion in 2022 to $1.66 trillion in 2023, and the amount of refinance originations in the U.S. single-family mortgage market will decrease from an estimated $753 billion in 2022 to $312 billion in 2023. Our April forecast is based on data available as of April 10, 2023. 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 Mortgage-Related Securities Issuances Share

Our single-family Fannie Mae MBS issuances were $68.2 billion for the first quarter of 2023, compared with $243.1 billion for the first quarter of 2022. This decrease was primarily driven by a lower volume of refinance activity in the first quarter of 2023 due to higher 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 2023 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 2023

We estimate our share of single-family mortgage-related securities issuances was 32% in the fourth quarter of 2022 and 37% in the first quarter of 2022.

Presentation of Our Single-Family Conventional Guaranty Book of Business

For purposes of the information reported in this “Single-Family Business” section, we measure the single-family conventional guaranty book of business using the unpaid principal balance of our mortgage loans underlying Fannie Mae MBS outstanding. By contrast, the single-family conventional 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 $3,628.4 billion as of March 31, 2023 and $3,635.2 billion as of December 31, 2022.

Single-Family Business Metrics

Select Business Metrics