Fannie Mae 2013 Annual Report Download

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
Commission File No.: 0-50231
Federal National Mortgage Association
(Exact name of registrant as specified in its charter)
Fannie Mae
Federally chartered corporation 52-0883107
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer
Identification No.)
3900 Wisconsin Avenue, NW
Washington, DC
(Address of principal executive offices) 20016
(zip code)
Registrant’s telephone number, including area code:
(202) 752-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of class)
8.25% Non-Cumulative Preferred Stock, Series T, stated value $25 per share
(Title of class)
8.75% Non-Cumulative Mandatory Convertible Preferred Stock, Series 2008-1, stated value $50 per share
(Title of class)
Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series S, stated value $25 per share
(Title of class)
7.625% Non-Cumulative Preferred Stock, Series R, stated value $25 per share
(Title of class)
6.75% Non-Cumulative Preferred Stock, Series Q, stated value $25 per share
(Title of class)
Variable Rate Non-Cumulative Preferred Stock, Series P, stated value $25 per share
(Title of class)
Variable Rate Non-Cumulative Preferred Stock, Series O, stated value $50 per share
(Title of class)
5.375% Non-Cumulative Convertible Series 2004-1 Preferred Stock, stated value $100,000 per share
(Title of class)
5.50% Non-Cumulative Preferred Stock, Series N, stated value $50 per share
(Title of class)
4.75% Non-Cumulative Preferred Stock, Series M, stated value $50 per share
(Title of class)
5.125% Non-Cumulative Preferred Stock, Series L, stated value $50 per share
(Title of class)
5.375% Non-Cumulative Preferred Stock, Series I, stated value $50 per share
(Title of class)
5.81% Non-Cumulative Preferred Stock, Series H, stated value $50 per share
(Title of class)
Variable Rate Non-Cumulative Preferred Stock, Series G, stated value $50 per share
(Title of class)
Variable Rate Non-Cumulative Preferred Stock, Series F, stated value $50 per share
(Title of class)
5.10% Non-Cumulative Preferred Stock, Series E, stated value $50 per share
(Title of class)
5.25% Non-Cumulative Preferred Stock, Series D, stated value $50 per share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer
(Do not check if a smaller reporting company) Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of the common stock held by non-affiliates of the registrant computed by reference to the last reported sale price of the common stock quoted on the OTC Bulletin Board on
June 28, 2013 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $1.6 billion.
As of January 31, 2014, there were 1,158,080,657 shares of common stock of the registrant outstanding.

Table of contents

  • Page 1
    ... Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2013 Commission File No.: 0-50231 Federal National Mortgage Association (Exact name of registrant as specified in its charter) Fannie Mae...

  • Page 2
    ...Operations ...Critical Accounting Policies and Estimates...Consolidated Results of Operations ...Business Segment Results ...Consolidated Balance Sheet Analysis ...Supplemental Non-GAAP Information-Fair Value Balance Sheets...Liquidity and Capital Management ...Off-Balance Sheet Arrangements ...Risk...

  • Page 3
    ... and Related Transactions, and Director Independence ...Policies and Procedures Relating to Transactions with Related Persons ...Transactions with Related Persons ...Director Independence...Item 14. Principal Accounting Fees and Services ...PART IV ...Item 15. Exhibits, Financial Statement Schedules...

  • Page 4
    ......Maturity Profile of Outstanding Debt of Fannie Mae Maturing in More Than One Year...Contractual Obligations...Cash and Other Investments Portfolio...Fannie Mae Credit Ratings ...Composition of Mortgage Credit Book of Business ...Selected Credit Characteristics of Single-Family Conventional Loans...

  • Page 5
    ......Rescission Rates and Claims Resolution of Mortgage Insurance ...Estimated Mortgage Insurance Benefit ...Unpaid Principal Balance of Financial Guarantees...Credit Loss Exposure of Risk Management Derivative Instruments ...Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level...

  • Page 6
    ... market and we are investing in improvements to the U.S. housing finance system. Our public mission is to support liquidity and stability in the secondary mortgage market, where existing mortgage-related assets are purchased and sold, and to increase the supply of affordable housing. Our charter...

  • Page 7
    ... Finance Reform" for information on current proposals for GSE reform. We continued our efforts to support the housing recovery in 2013. We remained the largest single issuer of mortgage-related securities in the secondary market during the fourth quarter of 2013 and a continuous source of liquidity...

  • Page 8
    ... our loss reserves. The improvement in our credit results in 2013 compared with 2012 was due in part to a decline in the number of delinquent loans in our single-family conventional guaranty book of business, as well as the recognition of compensatory fee income in 2013 related to servicing matters...

  • Page 9
    ... positive impact of increases in home prices in 2012, mortgage interest rates decreased, resulting in higher discounted cash flow projections on our individually impaired loans. Our credit-related income in 2012 was partially offset by changes in our assumptions and data used in calculating our loss...

  • Page 10
    ... of the volume of single-family loans we acquired. Table 1: Single-Family Acquisitions Statistics For the Year Ended December 31, 2012 2011 (Dollars in millions) 2013 Single-family average charged guaranty fee on new acquisitions (in basis points)(1)(2) ...Single-family Fannie Mae MBS issuances...

  • Page 11
    ... and quality of our retained mortgage portfolio; economic and housing market conditions; and legislative and regulatory changes. Because loans remain in our book of business for a number of years, the credit quality of and guaranty fees we charge on the loans we acquire in a particular year affects...

  • Page 12
    ... backing Fannie Mae MBS that we do not consolidate in our consolidated balance sheets and loans that we have guaranteed under long-term standby commitments. For additional information on the change in our loss reserves see "Consolidated Results of Operations-Credit-Related (Income) Expense-(Benefit...

  • Page 13
    ...principal balance of the related loans at the time of foreclosure. Net sales price represents the contract sales price less selling costs for the property and other charges paid by the seller at closing. Calculated as the amount of sale proceeds received on properties sold in short sale transactions...

  • Page 14
    ... by private institutions during the year. We estimate that the share of single-family mortgage-related securities issuances issued by Freddie Mac, Ginnie Mae and us was 99% in 2013. We remained a continuous source of liquidity in the multifamily market in 2013. We owned or guaranteed approximately...

  • Page 15
    ... of our 2013 net income: the release of the valuation allowance against our deferred tax assets, which contributed to a benefit for federal income taxes of $45.4 billion for the year; substantial credit-related income resulting from the substantial decrease in our loss reserves during the year; and...

  • Page 16
    ... changes in mortgage rates; actions the federal government has taken and may take with respect to tax policies, spending cuts, mortgage finance programs and policies and housing finance reform; the management of the Federal Reserve's MBS holdings; the impact of those actions on and changes generally...

  • Page 17
    ... the type of business we do; future updates to our models relating to our loss reserves, including the assumptions used by these models; future changes to our accounting policies; significant changes in modification and foreclosure activity; changes in borrower behavior, such as an increasing number...

  • Page 18
    ... number of conventional mortgage applications data reported by the Mortgage Bankers Association. Certain previously reported data may have been changed to reflect revised historical data from any or all of these organizations. Calculated internally using property data information on loans purchased...

  • Page 19
    ... of our MBS trusts; (3) circumstances under which we purchase loans from MBS trusts; and (4) single-class and multi-class Fannie Mae MBS. Lender Swaps and Portfolio Securitizations We currently securitize a majority of the single-family and multifamily mortgage loans we acquire. Our securitization...

  • Page 20
    ...market conditions, economic benefit, servicer capacity and other factors, including the limit on the amount of mortgage assets that we may own pursuant to the senior preferred stock purchase agreement. For our multifamily MBS trusts, we typically exercise our option to purchase a loan from the trust...

  • Page 21
    ... or, working also with our Capital Markets group, through loan purchases Credit risk management: Prices and manages the credit risk on loans in our single-family guaranty book of business Credit loss management: Works to prevent foreclosures and reduce costs of defaulted loans through home retention...

  • Page 22
    ... or, working also with our Capital Markets group, through loan purchases. Our Single-Family business has primary responsibility for pricing and managing the credit risk on our single-family guaranty book of business, which consists of single-family mortgage loans underlying Fannie Mae MBS and single...

  • Page 23
    ... fees received as compensation for assuming the credit risk on the mortgage loans underlying single-family Fannie Mae MBS. We also allocate guaranty fee revenues to the Single-Family business for assuming and managing the credit risk on the single-family mortgage loans held in our retained mortgage...

  • Page 24
    ... fees associated with multifamily business activities. Additionally, our Capital Markets group earns revenue that is related to our multifamily mortgage loans and securities held in our retained mortgage portfolio. We describe the credit risk management process employed by our Multifamily business...

  • Page 25
    ...-Family Business-Single-Family Mortgage Securitizations and Other Acquisitions." Our multifamily lender customers typically deliver only one mortgage loan, often a fixed-rate loan, to back each multifamily Fannie Mae MBS. The characteristics of each mortgage loan are used to establish guaranty fees...

  • Page 26
    ... domestic and international capital markets. Our Capital Markets group has primary responsibility for managing the interest rate risk associated with our investments in mortgage assets. Our Capital Markets group's business activity is primarily focused on making short-term use of our balance sheet...

  • Page 27
    ... "Mortgage Securitizations-Single-Class and Multi-Class Fannie Mae MBS." Other Customer Services Our Capital Markets group provides our lender customers with services that include offering to purchase mortgage assets; segregating customer portfolios to obtain optimal pricing for their mortgage loans...

  • Page 28
    ... GSE Act provides, however, that mortgage loans and mortgage-related assets that have been transferred to a Fannie Mae MBS trust must be held by the conservator for the beneficial owners of the Fannie Mae MBS and cannot be used to satisfy the general creditors of the company. For more information on...

  • Page 29
    ...preferred stock, debt securities and Fannie Mae MBS. Should we be placed into receivership, different assumptions would be required to determine the carrying value of our assets, which could lead to substantially different financial results. For more information on the risks to our business relating...

  • Page 30
    ... funds, cumulative quarterly cash dividends. Pursuant to the August 2012 amendment to the agreement, beginning in 2013, the method for calculating the amount of dividends for each quarter was changed from an annual rate of 10% per year on the then-current liquidation preference of the senior...

  • Page 31
    ...in conservatorship, beginning in 2012. Each annual risk management plan is required to set out our strategy for reducing our risk profile and to describe the actions we will take to reduce the financial and operational risk associated with each of our business segments. Each plan delivered after the...

  • Page 32
    ... a number of possible policy steps for winding down Fannie Mae and Freddie Mac, reducing the government's role in housing finance and helping bring private capital back to the mortgage market. These steps include (1) increasing guaranty fees, (2) gradually increasing the level of required down...

  • Page 33
    ... transfer transactions involving single-family mortgages with at least $30 billion of unpaid principal balances in 2013, (2) reduce the unpaid principal balance of new multifamily business relative to 2012 by at least 10% by tightening underwriting, adjusting pricing and limiting product offerings...

  • Page 34
    ... principal balance limits on loans we purchase or securitize that are insured by FHA or guaranteed by the VA. • Loan-to-Value and Credit Enhancement Requirements. The Charter Act generally requires credit enhancement on any single-family conventional mortgage loan that we purchase or securitize if...

  • Page 35
    ...may be amended from time to time. The rule is effective for as long as we remain subject to the terms and obligations of the senior preferred stock purchase agreement. New Products. The GSE Act requires us to obtain FHFA's approval before initially offering any product, subject to certain exceptions...

  • Page 36
    ... and operations of Fannie Mae, Freddie Mac and the FHLBs in the following ten areas: (1) internal controls and information systems; (2) independence and adequacy of internal audit systems; (3) management of market risk exposure; (4) management of market risk-measurement systems, risk limits, stress...

  • Page 37
    ... Mac to set aside in each fiscal year an amount equal to 4.2 basis points for each dollar of the unpaid principal balance of our total new business purchases to fund HUD's Housing Trust Fund and Treasury's Capital Magnet Fund, with 65% of this amount allocated to the Housing Trust Fund and the...

  • Page 38
    ... Act ties our capital requirements to the risk in our book of business, as measured by a stress test model. The stress test simulates our financial performance over a ten-year period of severe economic conditions characterized by both extreme interest rate movements and high mortgage default rates...

  • Page 39
    ...plan requirements include a cease-and-desist order and civil money penalties. As described in "Risk Factors," actions we may take to meet our housing goals may increase our credit losses and credit-related expense. In October 2013, FHFA determined that we met all of our single-family and multifamily...

  • Page 40
    ..., as well as to large bank holding companies. The Federal Reserve must establish standards related to risk-based capital, leverage limits, liquidity, single-counterparty exposure limits, resolution plans, reporting credit exposures and other risk management measures. In December 2011, the Board of...

  • Page 41
    ... or receivership. In May 2013, FHFA directed Fannie Mae and Freddie Mac to limit our acquisition of single-family loans to those loans that meet the points and fees, term and amortization requirements for qualified mortgages, or to loans that are exempt from the ability-to-repay rule, such...

  • Page 42
    ..., this Advisory Bulletin requires that we classify the portion of an outstanding single-family loan balance in excess of the fair value of the underlying property, less costs to sell and adjusted for any credit enhancements, as a "loss" no later than when the loan becomes 180 days delinquent, except...

  • Page 43
    ...managers, commercial banks, pension funds, insurance companies, Treasury, foreign central banks, corporations, state and local governments and other municipal authorities. During 2013, approximately 1,200 lenders delivered single-family mortgage loans to us, either for securitization or for purchase...

  • Page 44
    ... mortgage-related securities by private institutions during the year. We estimate that our single-family market share was 40% in 2013, compared with 39% in 2012. These amounts represent our single-family mortgage acquisitions for each year, excluding delinquent loans we purchased from our MBS trusts...

  • Page 45
    ..., including changes in home prices, changes in interest rates, our guaranty fee rates, the volume of single-family mortgage originations in the future, and the size, composition and quality of our retained mortgage portfolio and guaranty book of business, and economic and housing market conditions...

  • Page 46
    ... the national level, the multifamily sector may continue to exhibit below average fundamentals in certain local markets and with certain properties; Our expectation that the level of multifamily foreclosures in 2014 will generally remain commensurate with 2013 levels; Our belief that the increase in...

  • Page 47
    ... rates for single-family loans acquired in more recent years will be higher after the loans have aged, but will not be as high as the December 31, 2013 serious delinquency rates of loans in our legacy book of business; Our belief that we have limited credit exposure to losses on home equity...

  • Page 48
    ... delinquency rates, foreclosure timelines and credit-related income (expense); Our expectation that the number of our single-family loans in our book of business that are seriously delinquent will remain above pre-2008 levels for years; Our belief that the performance of our workouts will be highly...

  • Page 49
    ... to support the mortgage market and help borrowers; actions we may be required to take by FHFA, as our conservator or as our regulator; a decrease in our credit ratings; limitations on our ability to access the debt capital markets; disruptions in the housing and credit markets; significant changes...

  • Page 50
    ...2014, the White House issued a fact sheet reaffirming the Administration's view that housing finance reform should include ending Fannie Mae and Freddie Mac's business model. In a February 2012 letter to Congress, Edward DeMarco, then the Acting Director of FHFA, provided a strategic plan for Fannie...

  • Page 51
    ... in succession planning for our senior management and other critical positions and have been able to fill a number of important positions internally, our inability to offer market-based compensation may limit our ability to attract and retain qualified employees below the senior executive level that...

  • Page 52
    ... MBS trusts, which could increase our costs. Actions taken by the conservator and the restrictions set forth in the senior preferred stock purchase agreement could adversely affect our business, results of operations, financial condition, liquidity and net worth. Several lawsuits have been filed...

  • Page 53
    ...40% of the banks' high-quality liquid asset requirement, and then only after applying a 15% discount to the market value of those securities. U.S. banks currently hold large amounts of our outstanding debt and Fannie Mae MBS securities, and current U.S. banking regulations do not limit the amount of...

  • Page 54
    ... sell their homes in a "short sale" for significantly less than the unpaid amount of the loans. We present detailed information about the risk characteristics of our single-family conventional guaranty book of business in "MD&A- Risk Management-Credit Risk Management-Mortgage Credit Risk Management...

  • Page 55
    ... internal control over financial reporting in a future period. In April 2012, FHFA issued supervisory guidance requiring that we change our method of accounting for delinquent loans. This directive, which is described in "Business-Our Charter and Regulation of Our Activities-FHFA Advisory Bulletin...

  • Page 56
    ...to support the housing and mortgage markets, as well as struggling homeowners. They may also ask us to take actions in support of other goals. For example, in December 2011 Congress enacted the TCCA under which, at the direction of FHFA, we increased the guaranty fee on all single-family residential...

  • Page 57
    ... in the financial markets could significantly change the amount, mix and cost of funds we obtain, as well as our liquidity position. If we are unable to issue both short- and long-term debt securities at attractive rates and in amounts sufficient to operate our business and meet our obligations...

  • Page 58
    ... loans from us or reimburse us for losses in certain circumstances; third-party providers of credit enhancement on the mortgage assets that we hold in our retained mortgage portfolio or that back our Fannie Mae MBS, including mortgage insurers, lenders with risk sharing arrangements and financial...

  • Page 59
    ...from the purchase and securitization of mortgage loans depends on our ability to acquire a steady flow of mortgage loans from the originators of those loans. Although we are acquiring an increasing portion of our single-family business volume directly from smaller financial institutions, we continue...

  • Page 60
    ... default- and foreclosure-related legal services for our loans, which may adversely impact our efforts to reduce our credit losses. Challenges to the MERS® company, system and processes could pose operational, reputational and legal risks for us. MERSCORP Holdings, Inc. ("MERSCORP") is a privately...

  • Page 61
    ... Treasury under the senior preferred stock purchase agreement. Material weaknesses in our internal control over financial reporting could result in errors in our reported results or disclosures that are not complete or accurate. Management has determined that, as of the date of this filing, we have...

  • Page 62
    ... For example, we use models to measure and monitor our exposures to interest rate, credit and market risks, and to forecast credit losses. The information provided by these models is used in making business decisions relating to strategies, initiatives, transactions, pricing and products. Models are...

  • Page 63
    ... risk. We fund our operations primarily through the issuance of debt and invest our funds primarily in mortgage-related assets that permit mortgage borrowers to prepay their mortgages at any time. These business activities expose us to market risk, which is the risk of adverse changes in the fair...

  • Page 64
    ...prices would likely result in a higher level of credit losses and credit-related expense, which could have a material adverse effect on our results of operations, net worth and financial condition. A decline in activity in the U.S. housing market or increasing interest rates could lower our business...

  • Page 65
    ... on mortgage loans in our book of business could increase our delinquency rates, default rates and average loan loss severity of our book of business in the affected region or regions, which could have a material adverse effect on our business, results of operations, financial condition, liquidity...

  • Page 66
    ... operations, liquidity and financial condition, including our net worth. FHFA Private-Label Mortgage-Related Securities Litigation In the third quarter of 2011, FHFA, as conservator, filed 16 lawsuits on behalf of both Fannie Mae and Freddie Mac against various financial institutions, their officers...

  • Page 67
    ... of these lawsuits include challenges to the net worth sweep dividend provisions of the senior preferred stock that were implemented pursuant to the August 2012 amendments to the agreements, as well as to FHFA's decision to require Fannie Mae and Freddie Mac to draw funds from Treasury in order to...

  • Page 68
    ... stock as reported in the Bloomberg Financial Markets service. These prices represent high and low trade prices. No dividends were declared on shares of our common stock during the periods indicated. Quarter High Low 2012 First Quarter ...$ Second Quarter ...Third Quarter ...Fourth Quarter ...2013...

  • Page 69
    .... During the quarter ended December 31, 2013, we did not issue any equity securities. Information about Certain Securities Issuances by Fannie Mae Pursuant to SEC regulations, public companies are required to disclose certain information when they incur a material direct financial obligation or...

  • Page 70
    ...results for 2009. For the Year Ended December 31, 2013 2012 2011 (Dollars in millions) 2010 2009 Statement of operations data: Net revenues(1) ...$ 26,334 Net income (loss) attributable to Fannie 83,963 Mae ...New business acquisition data: Fannie Mae MBS issues acquired by third parties(2) ...$527...

  • Page 71
    ...family MBS trusts. Under our MBS trust documents, we have the option to purchase from MBS trusts loans that are delinquent as to four or more consecutive monthly payments. Calculated based on net interest income for the reporting period divided by the average balance of total interest-earning assets...

  • Page 72
    ... on our reported results of operations or financial condition. These critical accounting policies and estimates are as follows Fair Value Measurement Total Loss Reserves Other-Than-Temporary Impairment of Investment Securities Deferred Tax Assets Fair Value Measurement The use of fair value to...

  • Page 73
    ... by the Fannie Mae MBS trust as required to permit timely payments of principal and interest on the related Fannie Mae MBS. As a result, the guaranty reserve considers not only the principal and interest due on the loan at the current balance sheet date, but also an estimate of any additional...

  • Page 74
    ... other single-family loans in our single-family guaranty book of business using a model that estimates the probability of default of loans to derive an overall loss reserve estimate given multiple factors such as: origination year, mark-to-market LTV ratio, delinquency status and loan product type...

  • Page 75
    ... basis in future years; the funding available to us under the senior preferred stock purchase agreement; and the carryforward periods for net operating losses, capital losses and tax credits. As of December 31, 2012, we had a valuation allowance against our deferred tax assets of $58.9 billion...

  • Page 76
    ... upon filing our 2013 federal income tax return. Releasing the majority of the valuation allowance did not reduce the funding available to us under the senior preferred stock purchase agreement and therefore did not result in regulatory actions that would limit our business operations to...

  • Page 77
    ... statements of operations and comprehensive income (loss) is affected by our investment and debt activity, asset yields (including the impact of loans on nonaccrual status) and our funding costs. Table 8 displays an analysis of our net interest income, average balances, and related yields earned...

  • Page 78
    ... this adjustment, the average interest rate earned on total mortgage-related securities would have been 4.36% and the total net interest yield would have been 0.62% for the year ended December 31, 2011. Includes cash equivalents. Includes federal funds purchased and securities sold under agreements...

  • Page 79
    ...to the requirements of the senior preferred stock purchase agreement. • The factors that drove the increase in net interest income in 2012 were partially offset by: • • We initially recognize mortgage loans and debt of consolidated trusts in our consolidated balance sheets at fair value. We...

  • Page 80
    ...fees, technology fees, multifamily fees and other miscellaneous income. Fee and other income increased in 2013 compared with 2012 primarily as a result of funds we received in 2013 pursuant to settlement agreements resolving certain lawsuits relating to private-label mortgage-related securities sold...

  • Page 81
    ...gains and losses. Table 11: Fair Value Gains (Losses), Net For the Year Ended December 31, 2013 2012 (Dollars in millions) 2011 Risk management derivatives fair value gains (losses) attributable to: Net contractual interest expense accruals on interest rate swaps ...$ (767) Net change in fair value...

  • Page 82
    ...-Market Risk Management, Including Interest Rate Risk Management-Interest Rate Risk Management." Mortgage Commitment Derivatives Fair Value Gains (Losses), Net Certain commitments to purchase or sell mortgage-related securities and to purchase single-family mortgage loans are generally accounted...

  • Page 83
    ... of net commitments to sell mortgage-related securities in 2012 and (2) a further increase in prices driven by the Federal Reserve's announcement that it would increase its MBS purchases from financial institutions beginning in September 2012. Trading Securities Gains, Net The estimated fair value...

  • Page 84
    ... assets" in our consolidated balance sheets. Represents the fair value losses on loans purchased out of unconsolidated MBS trusts reflected in our consolidated balance sheets. Table 13 displays changes in the total allowance for loan losses, reserve for guaranty losses and the total combined loss...

  • Page 85
    ... of applicable guaranty book of business: Single-family ...Multifamily...Combined loss reserves as a percentage of: Total guaranty book of business...Recorded investment in nonaccrual loans(4) ...80 1.55% 0.29 1.47% 54.18 Charge-offs attributable to fair value losses on acquired credit-impaired...

  • Page 86
    ... for credit losses in 2011 primarily due to: (1) an increase in home prices in 2012 compared with a home price decline in 2011; (2) an increase in sales prices of our REO properties; and (3) a continued reduction in the number of delinquent loans in our single-family guaranty book of business. 81

  • Page 87
    ...reserves as of December 31, 2013, compared with approximately 85% as of December 31, 2012. See "Note 6, Financial Guarantees" for additional information regarding our Alt-A loans and 2005 to 2008 loan vintages as a percentage of our single-family conventional guaranty book of business. Troubled Debt...

  • Page 88
    ... loss performance metrics as well as our average single-family and multifamily initial charge-off severity rates. Table 15: Credit Loss Performance Metrics For the Year Ended December 31, 2013 Amount Ratio (1) 2012 Amount Ratio (1) 2011 Amount Ratio(1) (Dollars in millions) Charge-offs, net...

  • Page 89
    ... on credit-impaired loans acquired from MBS trusts and any costs, gains or losses associated with REO after initial acquisition through final disposition. Single-family rate excludes charge-offs from short sales and third-party sales. Multifamily rate is net of any risk sharing agreements. Credit...

  • Page 90
    ... of credit losses and forgone interest. Calculations are based on 98% of our total single-family guaranty book of business as of December 31, 2013 and 2012. The mortgage loans and mortgage-related securities that are included in these estimates consist of: (a) single-family Fannie Mae MBS (whether...

  • Page 91
    ... 2008 tax years with the Internal Revenue Service ("IRS") in 2011. We discuss federal income taxes and the factors that led us to release our valuation allowance against our deferred tax assets in "Critical Accounting Policies and Estimates-Deferred Tax Assets" and "Note 10, Income Taxes." BUSINESS...

  • Page 92
    ... 2012 and 2011. Table 18: Business Segment Summary For the Year Ended December 31, 2013 2012 (Dollars in millions) 2011 Net revenues:(1) Single-Family ...Multifamily...Capital Markets ...Consolidated trusts ...Eliminations/adjustments ...Total ...Net income (loss) attributable to Fannie Mae: Single...

  • Page 93
    ... adjustments on securities in the Capital Markets group's retained mortgage portfolio that on a GAAP basis are eliminated. Pursuant to the TCCA, effective April 1, 2012, we increased the guaranty fee on all single-family residential mortgages delivered to us on or after that date by 10 basis points...

  • Page 94
    ... information on serious delinquency rates and loan workouts, see "Risk Management-Credit Risk Management-Single-Family Mortgage Credit Risk Management." The primary source of revenue for our Single-Family business is guaranty fee income. Expenses and other items that impact income or loss primarily...

  • Page 95
    ... loss reserves. The improvement in our credit results in 2013 as compared with 2012 was due in part to a decline in the number of delinquent loans in our single-family conventional guaranty book of business, as well as the recognition of compensatory fee income in 2013 related to servicing matters...

  • Page 96
    ...continued high market share, our average single-family guaranty book of business remained relatively flat in 2013 compared with 2012, primarily due to U.S. residential mortgage debt outstanding remaining relatively flat. 2012 compared with 2011 Net income in 2012 compared with a net loss in 2011 was...

  • Page 97
    ... Multifamily effective guaranty fee rate (in basis points)(6)...Multifamily credit loss performance ratio (in basis points)(7)...Average multifamily guaranty book of business(8) ...Multifamily new business volume(9) ...Multifamily units financed from new business volume ...Multifamily Fannie Mae MBS...

  • Page 98
    ... loans and Fannie Mae MBS guaranteed by the Multifamily segment. Information labeled as of December 31, 2013 is as of September 30, 2013 and is based on the Federal Reserve's September 2013 mortgage debt outstanding release, the latest date for which the Federal Reserve has estimated mortgage debt...

  • Page 99
    ... recoveries, on nonaccrual loans received from the Single-Family segment of $3.8 billion, $5.2 billion and $6.6 billion for the years ended December 31, 2013, 2012 and 2011, respectively. The Capital Markets group's net interest income is reported based on the mortgage-related assets held in the...

  • Page 100
    ... Results of Operations-Fair Value Gains (Losses), Net." Fee and other income increased in 2013 compared with 2012 primarily as a result of funds we received in 2013 pursuant to settlement agreements resolving certain lawsuits relating to private-label mortgage-related securities sold to us...

  • Page 101
    ...assets we held in our retained mortgage portfolio as of December 31, 2012. During 2013, we sold $21.7 billion of non-agency mortgage-related assets in accordance with this objective. For additional information on the terms of the senior preferred stock purchase agreement with Treasury, see "Business...

  • Page 102
    ...our sales of mortgage-related assets to meet FHFA's 2013 conservatorship scorecard objective to sell 5% of the non-agency mortgage-related assets held in our retained mortgage portfolio as of December 31, 2012. Purchases declined due to fewer purchases of delinquent loans from our MBS trusts in 2013...

  • Page 103
    ... factors including the limit on the mortgage assets that we may own pursuant to the senior preferred stock purchase agreement with Treasury. We purchased approximately 183,000 delinquent loans with an unpaid principal balance of $27.9 billion from our single-family MBS trusts in 2013. As of December...

  • Page 104
    ... federal funds sold and securities purchased under agreements to resell or similar arrangements ...Restricted cash ...Investments in securities(1) ...Mortgage loans: Of Fannie Mae ...Of consolidated trusts ...Allowance for loan losses...Mortgage loans, net of allowance for loan losses...Deferred tax...

  • Page 105
    ... for loan losses, see "Consolidated Results of Operations-Credit-Related (Income) Expense." For additional information on the mortgage loan purchase and sale activities reported by our Capital Markets group, see "Business Segment Results-Capital Markets Group Results." Deferred Tax Assets, Net We...

  • Page 106
    ... Change in Fair Value of Net Assets (Net of Tax Effect) For Year Ended December 31, 2013 (Dollars in millions) GAAP consolidated balance sheets: Fannie Mae stockholders' equity as of December 31, 2012(1) ...Total comprehensive income...Senior preferred stock dividends paid ...Other ...Fannie Mae...

  • Page 107
    ... single-family guaranty book of business. The income from the interest spread between our mortgage assets and associated debt and derivatives as well as the revenue we received from single-family guaranty fees during 2013 contributed to the increase in the estimated fair value of our net assets...

  • Page 108
    ... sale ...Mortgage loans held for investment, net of allowance for loan losses: Of Fannie Mae...Of consolidated trusts ...Total mortgage loans ...Advances to lenders ...Derivative assets at fair value ...Guaranty assets and buy-ups, net ...Total financial assets ...Credit enhancements...Deferred tax...

  • Page 109
    ... and Uses of Funds Our primary source of funds is proceeds from the issuance of short-term and long-term debt securities. Accordingly, our liquidity depends largely on our ability to issue unsecured debt in the capital markets. Our status as a GSE and federal government support of our business...

  • Page 110
    ... and repurchased debt; the purchase of mortgage loans (including delinquent loans from MBS trusts), mortgage-related securities and other investments; interest payments on outstanding debt; dividend payments made to Treasury pursuant to the senior preferred stock purchase agreement; net payments on...

  • Page 111
    ... the debt of Fannie Mae. We fund our business primarily through the issuance of short-term and long-term debt securities in the domestic and international capital markets. Because debt issuance is our primary funding source, we are subject to "roll-over," or refinancing, risk on our outstanding debt...

  • Page 112
    ...Activity in Debt of Fannie Mae For the Year Ended December 31, 2013 2012 (Dollars in millions) 2011 Issued during the period: Short-term: Amount ...Weighted-average interest rate ...Long-term: Amount ...Weighted-average interest rate ...Total issued: Amount ...Weighted-average interest rate ...Paid...

  • Page 113
    ...of Outstanding Debt of Fannie Mae." In addition, the weighted-average interest rate on our long-term debt, based on its original contractual maturity, decreased to 2.14% as of December 31, 2013 from 2.25% as of December 31, 2012. Pursuant to the terms of the senior preferred stock purchase agreement...

  • Page 114
    ...-average interest rates reported in this table include the effects of discounts, premiums and other cost basis adjustments. Reported amounts include fair value gains and losses associated with debt that we elected to carry at fair value. The unpaid principal balance of outstanding debt of Fannie Mae...

  • Page 115
    ... Interest Rate Average During the Year WeightedAverage Interest Rate Outstanding Outstanding(2) (Dollars in millions) Maximum Outstanding(3) Federal funds purchased and securities sold under agreements to repurchase ...Fixed-rate short-term debt: Discount notes ...Foreign exchange discount notes...

  • Page 116
    ...31, 2013 and approximately 61 months as of December 31, 2012. Table 33: Maturity Profile of Outstanding Debt of Fannie Mae Maturing in More Than One Year(1) _____ (1) Includes unamortized discounts, premiums and other cost basis adjustments of $4.7 billion as of December 31, 2013. Excludes debt of...

  • Page 117
    ... investments portfolio increased in 2013 compared with 2012. The balance of our cash and other investments portfolio fluctuates based on changes in our cash flows, overall liquidity in the fixed income markets and our liquidity risk management policies and practices. See "Risk Management-Credit Risk...

  • Page 118
    ...: Cash and Other Investments Portfolio As of December 31, 2013 2012 (Dollars in millions) 2011 Cash and cash equivalents ...Federal funds sold and securities purchased under agreements to resell or similar arrangements...Non-mortgage-related securities: U.S. Treasury securities (1) ...Asset-backed...

  • Page 119
    ...31, 2011 to $21.1 billion as of December 31, 2012. This increase in the balance was primarily driven by cash provided by (1) issuances of long-term debt of consolidated trusts, from selling Fannie Mae MBS securities to third parties; (2) proceeds from the sale and liquidation of mortgage-related and...

  • Page 120
    ... requirements for Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Capital Activity We are effectively unable to raise equity capital from private sources at this time and, therefore, are reliant on the funding available under the senior preferred stock purchase agreement to address any net...

  • Page 121
    ...Fannie Mae MBS and other financial guarantees of $44.3 billion as of December 31, 2013 and $53.1 billion as of December 31, 2012. For more information on the mortgage loans underlying both our on- and off-balance sheet Fannie Mae MBS, as well as whole mortgage loans that we own, see "Risk Management...

  • Page 122
    ...risk of changes in our long-term earnings or in the value of our assets due to fluctuations in interest rates. Liquidity risk is our potential inability to meet our funding obligations in a timely manner. • Operational Risk. Operational risk is the loss resulting from inadequate or failed internal...

  • Page 123
    ... for setting appropriate controls such as limits and policies, is delegated to the Chief Risk Officer, who then delegates certain levels of risk management oversight authority to our Chief Credit Officer and to the chief risk officers of each business unit or functional risk area (for example, model...

  • Page 124
    ...of the risks associated with our use of models. Mortgage Credit Risk Management We are exposed to credit risk on our mortgage credit book of business because we either hold mortgage assets, have issued a guaranty in connection with the creation of Fannie Mae MBS backed by mortgage assets or provided...

  • Page 125
    ...loans and mortgage-related securities guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies. In the following sections, we discuss the mortgage credit risk of the single-family and multifamily loans in our guaranty book of business. The credit statistics reported...

  • Page 126
    ...-family guaranty book of business. We provide additional information on non-Fannie Mae mortgage-related securities held in our portfolio, including the impairment that we have recognized on these securities, in "Note 5, Investments in Securities." Single-Family Acquisition and Servicing Policies...

  • Page 127
    ... Our Activities-Charter Act," our charter generally requires credit enhancement on any single-family conventional mortgage loan that we purchase or securitize if it has an LTV ratio over 80% at the time of purchase. However, under HARP, we allow our borrowers who have mortgage loans with current LTV...

  • Page 128
    ... within our single-family mortgage credit book of business by product type, loan characteristics and geography is an important factor that influences credit quality and performance and may reduce our credit risk. We monitor various loan attributes, in conjunction with housing market and economic...

  • Page 129
    ...: Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business(1) Percent of Single-Family Conventional Business Volume(2) For the Year Ended December 31, 2013 2012 2011 Percent of Single-Family Conventional Guaranty Book of Business(3)(4) As of December 31, 2013...

  • Page 130
    ... 5% of our single-family conventional guaranty book of business as of December 31, 2013, 2012 and 2011. See "Business-Our Charter and Regulation of Our Activities-Charter Act-Loan Standards" and "Credit Profile Summary-JumboConforming and High-Balance Loans" for information on our loan limits. The...

  • Page 131
    ... principal balance of the loan as of the end of each reported period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates periodic changes in home value. Excludes loans for which this information is not readily available. Long...

  • Page 132
    ... require. In April 2013, FHFA announced the extension of the ending date for HARP to December 31, 2015. Loans we acquire under Refi Plus and HARP represent refinancings of loans that are already in our guaranty book of business. The credit risk associated with the acquired loans essentially replaces...

  • Page 133
    ... time, as each month the scheduled and unscheduled payments, interest, mortgage insurance premium, servicing fee and default-related costs accrue to increase the unpaid principal balance. The majority of these loans are home equity conversion mortgages insured by the federal government through FHA...

  • Page 134
    ..., and holding our servicers accountable for following our requirements. In 2011, we issued new standards for mortgage servicers regarding the management of delinquent loans, default prevention and foreclosure time frames under FHFA's directive to align GSE policies for servicing delinquent mortgages...

  • Page 135
    ... number of loans. We include single-family conventional loans that we own and those that back Fannie Mae MBS in the calculation of the single-family delinquency rate. Seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process. Percentage of book outstanding...

  • Page 136
    ...Jersey and New York have exhibited higher than average delinquency rates and/or account for a higher share of our credit losses. Table 44 displays the serious delinquency rates and other financial information for our single-family conventional loans with some of these higher-risk characteristics and...

  • Page 137
    ... Metrics We continue to work with our servicers to implement our home retention and foreclosure prevention initiatives. Loan modifications involve changes to the original mortgage terms such as product type, interest rate, amortization term, maturity date and/or unpaid principal balance. For many of...

  • Page 138
    ... credit losses while helping borrowers avoid foreclosure. We work to obtain the highest price possible for the properties sold in short sales and, in 2013, we received net sales proceeds from our short sale transactions equal to 67% of the loans' unpaid principal balance, compared with 61% in 2012...

  • Page 139
    ... indicated. For more information on the impact of TDRs, see "Note 3, Mortgage Loans." Table 46: Single-Family Troubled Debt Restructuring Activity(1)(2) For the Year Ended December 31, 2013 2012 2011 (Dollars in millions) Beginning balance, January 1 ...$ 207,405 $ 177,484 $ 155,564 New TDRs ...26...

  • Page 140
    ...our consolidated balance sheets as a component of "Acquired property, net." Estimated based on the total number of properties acquired through foreclosure or deeds-in-lieu of foreclosure as a percentage of the total number of loans in our single-family guaranty book of business as of the end of each...

  • Page 141
    ... of the 147,000 single-family properties we sold in 2013 were purchased by owner occupants, nonprofit organizations or public entities. We currently lease properties to tenants who occupied the properties before we acquired them into our REO inventory and to eligible borrowers who executed a deed-in...

  • Page 142
    ... information for California, as this state accounts for a large share of our single-family conventional guaranty book of business. Table 50: Single-Family Acquired Property Concentration Analysis As of For the Year Ended December 31, 2013 Percentage of Book Outstanding(1) Percentage of Properties...

  • Page 143
    ... signal changing risk or return profiles, and other risk factors. For example, in addition to capitalization rates, we closely monitor the rental payment trends and vacancy levels in local markets to identify loans that merit closer attention or loss mitigation actions. We are managing our exposure...

  • Page 144
    ...of Book Outstanding Serious Delinquency Rate Percentage of Multifamily Credit Losses For the Years Ended December 31, 2013(1) 2012 2011 DUS small balance loans (2) ...DUS non small balance loans (3) ...Non-DUS small balance loans (2) ...Non-DUS non small balance loans (3) ...Total multifamily loans...

  • Page 145
    ... for use and held for sale. Held-for-use properties are reported in our consolidated balance sheets as a component of "Other assets." The decrease in our multifamily properties acquired through foreclosure reflects the stability of national multifamily market fundamentals in 2013. The increase in...

  • Page 146
    ... holding costs for us, such as property taxes and insurance, repairs and maintenance, and valuation adjustments due to home price changes. See "Risk Factors" for a discussion of changes in the foreclosure environment. Although our business with our mortgage sellers is concentrated, a number...

  • Page 147
    ... increase our costs, reduce our revenues, or otherwise have an adverse effect on our results of operations or financial condition. As of December 31, 2013 and 2012, in estimating our allowance for loan losses, we assumed no benefit from repurchase demands due to us from mortgage sellers or servicers...

  • Page 148
    .... Mortgage Insurers We are generally required, pursuant to our charter, to obtain credit enhancements on single-family conventional mortgage loans that we purchase or securitize with LTV ratios over 80% at the time of purchase. We use several types of credit enhancements to manage our single-family...

  • Page 149
    ...our insurance in force increased in 2013 primarily due to the increase in our acquisition of loans with LTV ratios greater than 80%, which generally are required to carry mortgage insurance, as well as our execution of a risk transfer transaction with National Mortgage Insurance Corporation pursuant...

  • Page 150
    ... required terms of our mortgage insurance coverage for new acquisitions. In December 2013, we approved new master primary policies and related forms for use by each Fannie Mae-approved mortgage insurer when insuring loans that are intended for purchase or securitization by Fannie Mae. These policies...

  • Page 151
    ... severity of the loss associated with defaulted loans. We evaluate the financial condition of our mortgage insurer counterparties and adjust the contractually due recovery amounts to ensure that only probable losses as of the balance sheet date are included in our loss reserve estimate. As a result...

  • Page 152
    ...proceeds from private mortgage insurers (and, in cases where policies were rescinded or canceled or coverage was denied by the mortgage insurer, from mortgage sellers or servicers) for single-family loans of $5.7 billion in 2013, $5.1 billion in 2012 and $5.8 billion in 2011. Financial Guarantors We...

  • Page 153
    .... As noted above in "Mortgage Credit Risk Management-Multifamily Mortgage Credit Risk Management," our primary multifamily delivery channel is our DUS program, which is comprised of lenders that range from large depositories to independent non-bank financial institutions. As of December 31, 2013...

  • Page 154
    ...agreements relating to our OTC-cleared derivative transactions are not master netting arrangements. We estimate our exposure to credit loss on derivative instruments by calculating the replacement cost, on a present value basis, to settle at current market prices all outstanding derivative contracts...

  • Page 155
    ... clearing organizations. Includes mortgage insurance contracts and swap credit enhancements accounted for as derivatives. Represents the exposure to credit loss on derivative instruments, which we estimate using the fair value of all outstanding derivative contracts in a gain position. We net...

  • Page 156
    ...our corporate market risk policy and limits that are established by our Chief Market Risk Officer and our Chief Risk Officer and are subject to review and approval by our Board of Directors. Our Capital Markets Group has primary responsibility for executing our interest rate risk management strategy...

  • Page 157
    ... of our net assets, see "Supplemental Non-GAAP Information-Fair Value Balance Sheets." See "Risk Factors" for a discussion of the risks to our business posed by changes in interest rates or the loss of our ability to successfully manage interest risk. We monitor current market conditions, including...

  • Page 158
    ... to as over-the-counter derivatives, or they may be listed and traded on an exchange. When deciding whether to use derivatives, we consider a number of factors, such as cost, efficiency, the effect on our liquidity, results of operations and our overall interest rate risk management strategy. The...

  • Page 159
    ...estimated pre-tax impact on the market value of our net portfolio calculated based on a daily average, while the quarterly disclosure reflects the estimated pre-tax impact calculated based on the estimated financial position of our net portfolio and the market environment as of the last business day...

  • Page 160
    ... daily average, minimum, maximum and standard deviation values for duration gap and for the most adverse market value impact on the net portfolio to changes in the level of interest rates and the slope of the yield curve for the three months ended December 31, 2013 and 2012. Table 61: Interest Rate...

  • Page 161
    ..., net(1) ..._____ (1) $ 0.7 (3.9) $ 0.3 (3.8) $ (0.3) (2.7) $ (0.7) (2.4) Includes all financial assets less all Trading securities less all financial liabilities reported in "Note 18, Fair Value-Fair Value of Financial Instruments." Liquidity Risk Management See "Liquidity and Capital...

  • Page 162
    ... Risk Management division, are aligned with each of our primary business units as well as with our corporate functions such as finance and legal. Each risk lead reports to the Vice President and Chief Risk Officer of Operational Risk, who reports directly to the Executive Vice President and Chief...

  • Page 163
    ... due cash flows. We record our net investment in such loans at the lower of the acquisition cost of the loan or the estimated fair value of the loan at the date of acquisition. Typically, loans we acquire from our unconsolidated MBS trusts pursuant to our option to purchase upon default meet these...

  • Page 164
    ... both mortgage loans and mortgage-related securities we hold in our retained mortgage portfolio. For purposes of the senior preferred stock purchase agreement, the definition of mortgage assets is based on the unpaid principal balance of such assets and does not reflect market valuation adjustments...

  • Page 165
    ... calculating severity rates. For example, the numerator may reflect items such as foreclosed property expenses, taxes and insurance, and expected recoveries from pool insurance, while the denominator may reflect items such as purchased interest, basis, and selling costs. "Single-class Fannie Mae MBS...

  • Page 166
    ... information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures...

  • Page 167
    ... opinion on the effectiveness of our internal control over financial reporting as of December 31, 2013. This report is included below. Description of Material Weakness The Public Company Accounting Oversight Board's Auditing Standard No. 5 defines a material weakness as a deficiency or a combination...

  • Page 168
    ... company to enhance the flow of information and to provide oversight on a variety of matters, including accounting, credit and market risk management, external communications and legal matters. Senior officials within FHFA's Office of the Chief Accountant have met frequently with our senior finance...

  • Page 169
    ... responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit...

  • Page 170
    We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2013, of the Company and our report dated February 21, 2014, expressed an unqualified opinion on ...

  • Page 171
    ... business; finance; capital markets; accounting; risk management; public policy; mortgage lending, real estate, lowincome housing and/or homebuilding; technology; and the regulation of financial institutions. See "Corporate Governance- Composition of Board of Directors" below for further information...

  • Page 172
    ... experience in business, finance, accounting, risk management, public policy matters, mortgage lending, lowincome housing and the regulation of financial institutions, which she gained in the positions described above. Charlynn Goins, 71, served as Chairperson of the Board of Directors of New York...

  • Page 173
    ... in business, finance, accounting and risk management, which he gained in the positions described above. In March 2014, Mr. Laskawy will reach the mandatory retirement age for members of the Board of Directors. Timothy J. Mayopoulos, 54, has been President and Chief Executive Officer of Fannie Mae...

  • Page 174
    ... International Accounting Standards Committee Foundation from January 2007 until his term ended in December 2012. Mr. Sidwell has been a Fannie Mae director since December 2008. Mr. Sidwell is Chair of the Risk Policy & Capital Committee and a member of the Compensation Committee and the Executive...

  • Page 175
    ... areas engaging in redemptions or repurchases of our subordinated debt, except as may be necessary to comply with the senior preferred stock purchase agreement; increases in Board risk limits, material changes in accounting policy, and reasonably foreseeable material increases in operational risk...

  • Page 176
    ... in business, finance, capital markets, accounting, risk management, public policy, mortgage lending, real estate, low-income housing, homebuilding, regulation of financial institutions, technology and any other areas that may be relevant to the safe and sound operation of Fannie Mae. In...

  • Page 177
    ...Conduct and Conflicts of Interest Policy for Members of the Board of Directors. Our Code of Conduct also serves as the code of ethics for our Chief Executive Officer and senior financial officers required by the Sarbanes-Oxley Act of 2002 and implementing regulations of the SEC. We have posted these...

  • Page 178
    .... Boillat was Managing Director of Operations Technology at Citigroup from September 2004 to October 2009. Andrew J. Bon Salle, 48, has been Executive Vice President-Single-Family Underwriting, Pricing, and Capital Markets since April 2013. Mr. Bon Salle previously served as Fannie Mae's Senior Vice...

  • Page 179
    ..., General Counsel and Corporate Secretary; and John R. Nichols, Executive Vice President and Chief Risk Officer. This Compensation Discussion and Analysis describes our executive compensation program that was in effect for 2013. Specified changes to our executive compensation program effective...

  • Page 180
    ...financial targets, including acquiring and managing a profitable, high-quality book of new business from 2009 forward; Serve the housing market by being a major source of liquidity, effectively managing our legacy book of business and assisting troubled borrowers; Improve the company's risk, control...

  • Page 181
    ... to the mortgage market and supporting the housing market, as well as to prudently manage our $3.1 trillion book of business and enable the company to be an effective steward of the government's and taxpayers' support. We and FHFA recognize that the current levels of our executive compensation and...

  • Page 182
    ... Charter Act provides that Fannie Mae has the power to pay compensation to our executives that the Board of Directors determines is reasonable and comparable with compensation for employment in other similar businesses, including other publicly held financial institutions or major financial services...

  • Page 183
    ... our Chief Executive Officer, whose direct compensation for 2013 consisted solely of $600,000 in base salary. All elements of our named executives' direct compensation are paid in cash. Under the senior preferred stock purchase agreement with Treasury, we are prohibited from paying new stock-based...

  • Page 184
    ...non-tax-qualified defined contribution plan. executives by providing The plan supplements our tax-qualified defined additional retirement contribution plan by providing benefits to participants savings. whose annual eligible earnings exceed the IRS limit on eligible compensation for 401(k) plans. Mr...

  • Page 185
    ... 2011" for more information regarding Mr. Lerman's sign-on award. Termination of Defined Benefit Pension Plans In October 2013, pursuant to a directive from FHFA, our Board of Directors approved the termination of our qualified pension plan, The Federal National Mortgage Association Retirement Plan...

  • Page 186
    ...Tables-Summary Compensation Table for 2013, 2012 and 2011" for information regarding deferred salary Mr. Mayopoulos earned in 2012, which was paid to him in 2013. Effective April 3, 2013, in connection with his promotion to Chief Financial Officer, Mr. Benson's annual base salary rate increased from...

  • Page 187
    ... of 2013 at-risk deferred salary based on corporate-performance would be paid at 95% of target. FHFA stated that Fannie Mae's overall results on the 2013 scorecard were outstanding, noting in particular Fannie Mae's thought leadership in accomplishing several of the goals. The table below sets forth...

  • Page 188
    ... in meeting the totals set forth for each measure. • Single Family - Each Enterprise will demonstrate the viability of multiple types of risk transfer transactions involving single family mortgages with at least $30 billion of unpaid principal balances in 2013. (The threshold for credit is...

  • Page 189
    ... key financial targets, including acquiring and managing a profitable, high-quality book of new business from 2009 forward. Return on Capital: Acquire single-family and multifamily loans in 2013 that are expected to generate returns in excess of the cost of capital (excluding loans acquired pursuant...

  • Page 190
    ... statement of operations for 2013.) Achieved this goal. Goal 2: Serve the housing market by being a major source of liquidity, effectively managing our legacy book of business and assisting troubled borrowers. Seriously delinquent loans. Reduce the number of seriously delinquent single-family loans...

  • Page 191
    ... all 2013 milestones by year-end. Achieved this metric. Information Regarding Performance against Return on Capital Our "Return on Capital" goal discussed above was designed to help achieve the company's goal of acquiring a profitable, high-quality book of new business. At the time this metric...

  • Page 192
    ...2013 Board of Directors' goals, including his work redesigning the short sales process and reducing our seriously delinquent single-family loan count by 157,754 loans to a new total of only 418,837 loans as of December 31, 2013. Bradley Lerman, Executive Vice President, General Counsel and Corporate...

  • Page 193
    ... analysis of market compensation data for select senior management positions; reviewing various management proposals relating to compensation structures and levels, and for new hires and promotions; reviewing the company's risk assessment of its 2013 compensation program; assisting the Compensation...

  • Page 194
    ... Corporation • PNC Financial Services Group, Inc. The Compensation Committee follows a bifurcated approach to benchmarking senior executive positions. Under this approach, while the comparator group noted above is the primary group of companies used for benchmarking senior management pay levels...

  • Page 195
    ... earned under the 2014 executive compensation program, the company will pay interest on deferred salary to comply with IRS rules that became applicable with the termination of the company's defined benefit pension plans. This interest income accrues at one-half of the one-year Treasury Bill rate...

  • Page 196
    ..., the Board of Directors and the Compensation Committee have oversight of and approve determinations regarding performance of corporate, internal audit and compliance and ethics goals, incentive funding and individual incentive awards for senior management. • Deferred salary for our SEC executive...

  • Page 197
    ... Chief Financial Officer Terence Edwards...Executive Vice President and Chief Operating Officer Bradley Lerman...Executive Vice President, General Counsel and Corporate Secretary John Nichols ...Executive Vice President and Chief Risk Officer 2013 2012 2011 2013 2012 2011 2013 2012 2011 2013 2012...

  • Page 198
    ...000 2013 at-risk deferred salary target that she earned prior to her departure from the company. See footnote 9 below for additional information. (5) Long-term incentive awards were eliminated as a component of Fannie Mae's executive compensation program beginning in 2012. Amounts shown for 2012 in...

  • Page 199
    ... in the "Summary Compensation Table" immediately above reflect salary actually paid during 2013. Because of the timing of our payroll periods, payments in 2013 included payment for one day of 2012, at lower base salary rates, during 2013. Ms. McFarland joined Fannie Mae as Chief Financial Officer in...

  • Page 200
    ... at-risk deferred salary for 2013. Effective January 1, 2013, his total target direct compensation consists solely of a base salary of $600,000. (2) Outstanding Equity Awards at 2013 Fiscal Year-End The following table shows the only outstanding stock option award held by the named executives as...

  • Page 201
    ... of the date of grant. Pension Benefits Freeze of Benefits under and Termination of Defined Benefit Pension Plans. In October 2013, pursuant to a directive from FHFA, our Board of Directors approved the termination of the Retirement Plan and the Supplemental Plans, in each case effective December...

  • Page 202
    ...Supplemental Pension Plan of 2003 was to provide additional benefits based on eligible incentive compensation not taken into account under the Retirement Plan or the Supplemental Pension Plan. Eligible incentive compensation for executive officers includes deferred salary under our current executive...

  • Page 203
    ... executive under our defined benefit pension plans as of December 31, 2013. Pension Benefits for 2013 Number of Years Credited Service (#)(1) Present Value of Accumulated Benefit ($)(2) Name Plan Name Timothy Mayopoulos ...Not applicable David Benson ...Retirement Plan Supplemental Pension Plan...

  • Page 204
    ... are reported as 2013 compensation in the "Summary Compensation Table for 2013, 2012 and 2011" because the earnings are neither above-market nor preferential. Amounts reported in this column for Mr. Mayopoulos include company contributions in 2012 and 2011 to the Supplemental Retirement Savings Plan...

  • Page 205
    ...Fannie Mae Stock Compensation Plan of 2003 and the Fannie Mae Stock Compensation Plan of 1993, upon the occurrence of the employee's death, total disability or retirement, the option holder, or the holder's estate in the case of death, can exercise any stock options until the initial expiration date...

  • Page 206
    ... general release of the company from all claims relating to her employment with or termination from the company. Under the agreement, Fannie Mae also agreed that Ms. McFarland would remain employed in the role of senior adviser for a transition period that would end no later than June 30, 2013. FHFA...

  • Page 207
    ... partway into 2013. Mr. Laskawy serves as our non-executive Chairman. (2) (3) Compensation Arrangements for our Non-Management Directors Our non-management directors receive a retainer at an annual rate of $160,000, with no meeting fees. Committee chairs and Audit Committee members receive an...

  • Page 208
    ... deferred stock balances. Outstanding awards, options and rights include grants under the Fannie Mae Stock Compensation Plan of 2003 and the payout of shares deferred upon the settlement of awards made under a prior plan. The weighted average exercise price is calculated for the outstanding options...

  • Page 209
    Number of Shares Beneficially Owned(1) 8.25% NonCumulative Series T Preferred Stock Name and Position Common Stock Amy E. Alving ...Director David C. Benson ...Executive Vice President-Chief Financial Officer Terence W. Edwards ...Executive Vice President-Chief Operating Officer William Thomas ...

  • Page 210
    ... with related persons that are required to be reported under Item 404(a) of Regulation S-K are set forth in our: • Code of Conduct and Conflicts of Interest Policy for Members of the Board of Directors; • Nominating & Corporate Governance Committee Charter; • Board of Directors' delegation...

  • Page 211
    ... Charter and our Board's delegation of authorities and reservation of powers require the Nominating & Corporate Governance Committee to approve any transaction that Fannie Mae engages in with any director, nominee for director or executive officer, or any immediate family member of a director...

  • Page 212
    ... and prevent foreclosures. One of the primary initiatives under the Making Home Affordable Program is the Home Affordable Modification Program, or HAMP, which is aimed at helping borrowers whose loan is either currently delinquent or at imminent risk of default by modifying their mortgage loan to...

  • Page 213
    ...the capacity of general partner or managing member, as the case may be. These limited partnerships or limited liability companies are referred to as the Integral Property Partnerships. The Integral Property Partnerships own and manage LIHTC properties. We also hold multifamily mortgage loans made to...

  • Page 214
    ...received for the property and was at the full list price at the time of the offer. DIRECTOR INDEPENDENCE Our Board of Directors, with the assistance of the Nominating & Corporate Governance Committee, has reviewed the independence of all current Board members under the requirements set forth in FHFA...

  • Page 215
    ... five years that, in any single fiscal year, were in excess of $1 million or 2% of the entity's consolidated gross annual revenues, whichever is greater; or • an immediate family member of the director is a current executive officer of a company or other entity that does or did business with...

  • Page 216
    ... business relationships include the following: • Since 2006, Fannie Mae has held six multifamily mortgage loans made to six borrowing entities sponsored by Integral. In each case, Integral participates in the borrowing entity as a general partner of the limited partnership, or as a managing member...

  • Page 217
    ... public accounting firm for the past year and the fees for such services, categorized into audit services, audit-related services, tax services and other services. In connection with its approval of Deloitte & Touche as Fannie Mae's independent registered public accounting firm for Fannie Mae's 2013...

  • Page 218
    ... Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Federal National Mortgage Association /s/ Timothy J. Mayopoulos Timothy J. Mayopoulos President and Chief Executive Officer Date: February 21, 2014...

  • Page 219
    ...Title Date /s/ William Thomas Forrester William Thomas Forrester Director February 21, 2014 /s/ Brenda J. Gaines Brenda J. Gaines Director February 21, 2014 /s/ Charlynn Goins Charlynn Goins Director February 21, 2014 /s/ Frederick B. Harvey III Frederick B. Harvey III Director February...

  • Page 220
    ... 4.4 4.5 Fannie Mae Charter Act (12 U.S.C. § 1716 et seq.) as amended through July 30, 2008 (Incorporated by reference to Exhibit 3.1 to Fannie Mae's Annual Report on Form 10-K (Commission file number 001-34140) for the year ended December 31, 2010, filed February 24, 2011.) Fannie Mae Bylaws, as...

  • Page 221
    ...Agreement for directors and officers of Fannie Mae (Incorporated by reference to Exhibit 10.15 to Fannie Mae's Annual Report on Form 10-K (Commission file number 001-34140) for the year ended December 31, 2008, filed February 26, 2009.) Federal National Mortgage Association Supplemental Pension Plan...

  • Page 222
    ... to Fannie Mae Supplemental Retirement Savings plan for 2012 Executive Compensation Program, adopted May 18, 2012†(Incorporated by reference to Exhibit 10.3 to Fannie Mae's Quarterly Report on Form 10-Q (Commission file number 000-50231) for the quarter ended June 30, 2012, filed August 8, 2012...

  • Page 223
    ... Association, and Federal Home Loan Mortgage Corporation, dated November 23, 2011 (Incorporated by reference to Exhibit 10.42 to Fannie Mae's Annual Report on Form 10-K (Commission file number 000-50231) for the year ended December 31, 2011, filed February 29, 2012.) Agreement and General Release...

  • Page 224
    ...Description 101. DEF XBRL Taxonomy Extension Definition* 101. LAB XBRL Taxonomy Extension Labels* 101. PRE XBRL Taxonomy Extension Presentation This Exhibit is a management contract or compensatory plan or arrangement. The financial information contained in these XBRL documents is unaudited. E-5

  • Page 225
    ... Statements...Note 1-Summary of Significant Accounting Policies...Note 2-Consolidations and Transfers of Financial Assets ...Note 3-Mortgage Loans ...Note 4-Allowance for Loan Losses ...Note 5-Investments in Securities ...Note 6-Financial Guarantees ...Note 7-Acquired Property, Net ...Note 8-Short...

  • Page 226
    ... of Fannie Mae and consolidated entities (in conservatorship) (the "Company") as of December 31, 2013 and 2012, and the related consolidated statements of operations and comprehensive income (loss), cash flows, and changes in equity (deficit) for each of the three years in the period ended December...

  • Page 227
    ... 31, 2013 2012 ASSETS Cash and cash equivalents ...Restricted cash (includes $23,982 and $61,976, respectively, related to consolidated trusts) ...Federal funds sold and securities purchased under agreements to resell or similar arrangements ...Investments in securities: Trading, at fair value...

  • Page 228
    FANNIE MAE (In conservatorship) Consolidated Statements of Operations and Comprehensive Income (Loss) (Dollars and shares in millions, except per share amounts) For the Year Ended December 31, 2013 2012 2011 Interest income: Trading securities...Available-for-sale securities...Mortgage loans (...

  • Page 229
    ... property and preforeclosure sales ...Net change in federal funds sold and securities purchased under agreements to resell or similar arrangements...Other, net ...Net cash provided by investing activities ...Cash flows used in financing activities: Proceeds from issuance of debt of Fannie Mae...

  • Page 230
    ... (net of tax of $9) ...Prior service cost and actuarial gains, net of amortization for defined benefit plans...Total comprehensive income ...Senior preferred stock dividends ...Increase to senior preferred liquidation preference ...Other ...Balance as of December 31, 2012 . . Change in investment in...

  • Page 231
    ... mortgage-related securities. We operate under three business segments: Single-Family Credit Guaranty ("Single-Family"), Multifamily and Capital Markets. Our Single-Family segment generates revenue primarily from the guaranty fees on the mortgage loans underlying guaranteed single-family Fannie Mae...

  • Page 232
    ... preferred stock for a dividend period is determined based on our net worth as of the end of the immediately preceding fiscal quarter. Our net worth as defined by the agreement is the amount, if any, by which our total assets (excluding Treasury's funding commitment and any unfunded amounts related...

  • Page 233
    ..., risk on our outstanding debt. Our ability to issue long-term debt has been strong primarily due to actions taken by the federal government to support us and the financial markets. We believe that continued federal government support of our business and the financial markets, as well as our status...

  • Page 234
    ... 2011 ("TCCA") which, among other provisions, requires that we increase our single-family guaranty fees by at least 10 basis points and remit this increase to Treasury. Effective April 1, 2012, the guaranty fee on all single-family residential mortgages delivered to Fannie Mae on or after that date...

  • Page 235
    ..., mortgage insurance coverage claims and compensatory fees. As a result of this settlement, we recorded $173 million as a benefit to "Benefit (provision) for credit losses," in our consolidated statement of operations and comprehensive income for the year ended December 31, 2012. At the time of...

  • Page 236
    ... "Investment gains, net" in our consolidated statements of operations and comprehensive income (loss). Purchase/Sale of Fannie Mae Securities We actively purchase and may subsequently sell guaranteed MBS that have been issued through our lender swap and portfolio securitization transaction programs...

  • Page 237
    ... to a Federal Housing Administration guaranty and related Servicing Guide). When we purchase single-class Fannie Mae MBS issued from a consolidated trust, we account for the transaction as an extinguishment of the related debt in our consolidated financial statements. We record a gain or loss on the...

  • Page 238
    ... "Investment gains, net" in our consolidated statements of operations and comprehensive income (loss). Retained interests are primarily derived from transfers associated with our portfolio securitizations in the form of Fannie Mae MBS, REMIC certificates, guaranty assets and master servicing assets...

  • Page 239
    ...cash flows from federal funds purchased and securities sold under agreements to repurchase as financing activities. We classify cash flows related to dollar roll transactions that do not meet the requirements to be accounted for as secured borrowings as purchases and sales of securities in investing...

  • Page 240
    ... FINANCIAL STATEMENTS - (Continued) based on observable market prices because most Fannie Mae MBS are actively traded. Fannie Mae MBS receive high credit quality ratings primarily because of our guaranty. The fair value of the guaranty obligation, net of deferred profit, associated with Fannie Mae...

  • Page 241
    ... consolidated balance sheets. The trusts do not have the ability to sell mortgage loans and the use of such loans is limited exclusively to the settlement of obligations of the trusts. Therefore, mortgages acquired when we have the intent to securitize via trusts that are consolidated will generally...

  • Page 242
    ... collective single-family loss reserve using an econometric model that derives an overall loss reserve estimate. The estimate takes into account multiple factors which include but are not limited to origination year, loan product type, mark-to-market LTV ratio, and delinquency status. Once loans are...

  • Page 243
    ... We categorize loan credit risk based on relevant observable data about a borrower's ability to pay, including multifamily market economic fundamentals, review of available current borrower financial information, operating statements on the underlying collateral, current debt service coverage ratios...

  • Page 244
    ... loans or Fannie Mae MBS. Accordingly, this activity is reflected as a non-cash transfer in our consolidated statements of cash flows in the line item entitled "Transfers from advances to lenders to loans held for investment of consolidated trusts." Acquired Property, Net "Acquired property, net...

  • Page 245
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Regular-way securities trades provide for delivery of securities within the time generally established by regulations or conventions in the market in which the trade occurs and are exempt from application of ...

  • Page 246
    ...a component of "Fair value gains (losses), net" in our consolidated statements of operations and comprehensive income (loss). When we purchase a Fannie Mae MBS issued from a consolidated single-class securitization trust, we extinguish the related debt of the consolidated trust as the MBS debt is no...

  • Page 247
    ...Fees We charge our primary servicers a compensatory fee for servicing delays within their control when they fail to comply with established loss mitigation and foreclosure timelines per our Servicing Guide, which sets forth our policies and procedures related to servicing our single-family mortgages...

  • Page 248
    ... that are established to finance the acquisition, construction, development or rehabilitation of affordable multifamily and single-family housing. These interests include investments in securities issued by VIEs, such as Fannie Mae MBS created pursuant to our securitization transactions and our...

  • Page 249
    ... tax credits and net operating losses that may reduce our federal income tax liability. Our LIHTC investments primarily represent limited partnership interests in entities that have been organized by a fund manager who acts as the general partner. These fund investments seek out equity investments...

  • Page 250
    ... The total assets of these unconsolidated limited partnership investments were $6.8 billion and $11.7 billion as of December 31, 2013 and 2012, respectively. Transfers of Financial Assets We issue Fannie Mae MBS through portfolio securitization transactions by transferring pools of mortgage loans or...

  • Page 251
    ...) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Fannie Mae Single-class MBS & Fannie Megas REMICS & SMBS (Dollars in millions) As of December 31, 2013 Unpaid principal balance ...$ 349 Fair value ...383 Weighted-average coupon ...6.21 % Weighted-average loan age ...7.4 years Weighted...

  • Page 252
    ... Of Fannie Mae 2012 Of Consolidated Trusts Total Total (Dollars in millions) Single-family...$ 276,644 Multifamily ...37,642 Total unpaid principal balance of mortgage loans ...314,286 Cost basis and fair value adjustments, net...(13,778) Allowance for loan losses for loans held for investment...

  • Page 253
    ..., discounts and other cost basis adjustments, and accrued interest receivable. Single-family seriously delinquent loans are loans that are 90 days or more past due or in the foreclosure process. Multifamily seriously delinquent loans are loans that are 60 days or more past due. Consists of mortgage...

  • Page 254
    ... The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each reported period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates periodic changes in home value. As...

  • Page 255
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 2013 and 2012, and average recorded investment and interest income recognized for the years ended December 31, 2013, 2012 and 2011 for individually impaired loans. As of December 31, 2013 Related Allowance for ...

  • Page 256
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the Year Ended December 31, 2013 Interest Income Recognized on a Cash Basis 2012 Interest Income Recognized on a Cash Basis 2011 Interest Income Recognized on a Cash Basis Average Recorded Investment ...

  • Page 257
    ... number of loans and recorded investment in loans that had a payment default for the years ended December 31, 2013 and 2012 and were restructured in a TDR in the twelve months prior to the payment default. For purposes of this disclosure, we define loans that had a payment default as: single-family...

  • Page 258
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the Year Ended December 31, 2013 2012 Number of Loans Recorded Investment(1) Number of Loans Recorded Investment(1) (Dollars in millions) Single-family: Primary (2) ...Government (3) ...Alt-A ...Other (4)...

  • Page 259
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table displays changes in single-family, multifamily and total allowance for loan losses for the years ended December 31, 2013, 2012 and 2011. For the Year Ended December 31, 2013 Of Fannie Mae Of...

  • Page 260
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table displays the allowance for loan losses and total recorded investment in our HFI loans, excluding loans for which we have elected the fair value option, by impairment or reserve methodology ...

  • Page 261
    ... (losses), net" in our consolidated statements of operations and comprehensive income (loss). The following table displays our investments in trading securities as of December 31, 2013 and 2012. As of December 31, 2013 2012 (Dollars in millions) Mortgage-related securities: Fannie Mae ...$ 5,870...

  • Page 262
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) As of December 31, 2013 Total Amortized Cost (1) Gross Unrealized Gains Gross Unrealized Losses OTTI (2) Gross Unrealized Losses Other (3) Total Fair Value (Dollars in millions) Fannie Mae ...$ 6,227 Freddie ...

  • Page 263
    ... type recognized in our consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2013, 2012 and 2011. Net otherthan-temporary impairments include credit losses on debt securities we do not intend to sell and the excess of amortized cost over the fair...

  • Page 264
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the Year Ended December 31, 2013 2012 2011 (Dollars in millions) Alt-A private-label securities...$ 34 Subprime private-label securities...5 Other ...25 Net other-than-temporary impairments(1)...$ 64 _____...

  • Page 265
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table displays the modeled attributes, including default rates and severities, which were used to determine as of December 31, 2013 whether our senior interests in certain non-agency mortgage-...

  • Page 266
    ... the credit risk of mortgage loans in unconsolidated trusts in exchange for a guaranty fee. We also provide credit enhancements on taxable or tax-exempt mortgage revenue bonds issued by state and local governmental entities to finance multifamily housing for low- and moderate-income families...

  • Page 267
    ... 1.0, and high original and current estimated LTV ratios. We stratify multifamily loans into different internal risk categories based on the credit risk inherent in each individual loan. For single-family and multifamily loans, we use this information, in conjunction with housing market and economic...

  • Page 268
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) As of December 31, 2013(1) Percentage of Single-Family Conventional Guaranty Book of Business(3) 2012(1) Percentage of Single-Family Conventional Guaranty Book of Business(3) Percentage Seriously Delinquent...

  • Page 269
    ... after initial acquisition. We classify properties as held for sale when we intend to sell the property and are actively marketing it for sale. The following table displays the activity in acquired property, net of the related valuation allowance, for the years ended December 31, 2013, 2012 and 2011...

  • Page 270
    ...of acquired properties held for use for the years ended December 31, 2013, 2012 and 2011. For the Year Ended December 31, 2013 2012 2011 (Dollars in millions) Beginning balance, January 1 ...Transfers in from held for sale, net and additions ...Transfers to held for sale, net ...Depreciation, asset...

  • Page 271
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Long-Term Debt Long-term debt represents borrowings with an original contractual maturity of greater than one year. The following table displays our outstanding long-term debt as of December 31, 2013 and 2012. ...

  • Page 272
    ...,074 (3) Reported amount includes a net unamortized discount, fair value adjustments and other cost basis adjustments of $4.8 billion. Contractual maturity of debt of consolidated trusts is not a reliable indicator of expected maturity because borrowers of the underlying loans generally have the...

  • Page 273
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) We enter into forward purchase and sale commitments that lock in the future delivery of mortgage loans and mortgagerelated securities at a fixed price or yield. Certain commitments to purchase mortgage loans ...

  • Page 274
    ...consolidated statements of operations and comprehensive income (loss). The following table displays, by type of derivative instrument, the fair value gains and losses, net on our derivatives for the years ended December 31, 2013, 2012 and 2011. For the Year Ended December 31, 2013 2012 2011 (Dollars...

  • Page 275
    ... basis in future years; the funding available to us under the senior preferred stock purchase agreement; and the carryforward periods for net operating losses, capital losses and tax credits. As of December 31, 2012, we had a valuation allowance against our deferred tax assets of $58.9 billion...

  • Page 276
    ... 31, 2013 2012 (Dollars in millions) Deferred tax assets: Allowance for loan losses and basis in acquired property, net...Mortgage and mortgage-related assets ...Debt and derivative instruments ...Partnership credits ...Partnership and other equity investments ...Net operating loss and alternative...

  • Page 277
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Benefit for Income Taxes The following table displays the components of our benefit for federal income taxes for the years ended December 31, 2013, 2012 and 2011. For the Year Ended December 31, 2013 2012 2011 ...

  • Page 278
    ... our net worth as of the end of the immediately preceding fiscal quarter less the applicable capital reserve amount of $3.0 billion. During the years ended December 31, 2012 and 2011, an annual dividend rate of 10% on the aggregate liquidation preference was used to calculate the dividend. Includes...

  • Page 279
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) the fourth quarter of 2013. By March 31, 2014, we will pay Treasury a senior preferred stock dividend for the first quarter of 2014 of $7.2 billion, which equals the excess of our net worth as of December 31, ...

  • Page 280
    ... as a component of net periodic benefit cost for the years ended December 31, 2013 and 2012. For the Year Ended 2013 2012 Other PostOther PostPension Retirement Pension Retirement Plans Plan Plans Plan (Dollars in millions) Actuarial Loss: Beginning balance, January 1...Current year actuarial (gain...

  • Page 281
    ...benefit credits associated with our other postretirement plan during 2014. Upon settlement of the pension plans, which is expected to be completed by December 31, 2015, the ending balance remaining in AOCI will be recognized in our consolidated statements of operations and comprehensive income (loss...

  • Page 282
    ... to the plans. In determining our net periodic benefit costs, we assess the discount rate to be used in the annual actuarial valuation of our pension and other postretirement benefit obligations at year-end. We consider the current yields on high-quality, corporate fixed-income debt instruments with...

  • Page 283
    ... the net asset value per share of the investments as of year end. None of the fair values for plan assets were determined by using significant unobservable inputs, or Level 3. Fair Value Measurement as of December 31, 2013 Quoted Prices in Active Markets for Identical Assets (Level 1) Quoted Prices...

  • Page 284
    ...plan. This plan supplements our Retirement Savings Plan to provide benefits to employees whose annual eligible earnings exceed the IRS annual limit on eligible compensation for 401(k) plans, which is $255,000 in 2013. Eligible compensation consists of base salary plus eligible incentive compensation...

  • Page 285
    ... financial information reconciles to our consolidated financial statements. Single-Family The primary source of revenue for our Single-Family business is the guaranty fees the segment receives as compensation for assuming the credit risk on the mortgage loans underlying single-family Fannie Mae MBS...

  • Page 286
    ...limited to our funding debt, which is reported as "Debt of Fannie Mae" in our consolidated balance sheets. Net interest expense also includes an allocated cost of capital charge among the three business segments that is not included in net interest income in our consolidated statements of operations...

  • Page 287
    ... fee income as a charge from the Single-Family and Multifamily segments to Capital Markets for managing the credit risk on mortgage loans held by the Capital Markets group. The following tables display our business segment financial results for the years ended December 31, 2013, 2012 and 2011...

  • Page 288
    ...) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the Year Ended December 31, 2012(11) Business Segments SingleFamily Multifamily Capital Markets Other Activity/Reconciling Items Consolidated Trusts(1) Eliminations/ Adjustments(2) Total Results (Dollars in millions) Net interest (loss...

  • Page 289
    ...) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the Year Ended December 31, 2011 Business Segments SingleFamily Multifamily Capital Markets Other Activity/Reconciling Items Consolidated Trusts(1) Eliminations/ Adjustments(2) Total Results (Dollars in millions) Net interest (loss...

  • Page 290
    ... recognized on acquired credit impaired loans as they are not treated as assets for Single-Family and Multifamily segment reporting purposes because these allowances and losses relate to loan assets that are held by the Capital Markets segment and consolidated trusts. We operate our business solely...

  • Page 291
    ... (1) Initial stated value per share was $1,000. Based on our draws of funds under the senior preferred stock purchase agreement with Treasury, the stated value per share on December 31, 2013 was $117,149. For the dividend period ended December 31, 2013, the dividend is calculated based on our net...

  • Page 292
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (7) Rate effective December 31, 2013. Variable dividend rate resets quarterly thereafter at a per annum rate equal to the greater of 7.00% or 10-year CMT rate plus 2.375%. Issued and outstanding shares were 24...

  • Page 293
    ... for the years ended December 31, 2013, 2012 and 2011, respectively. Effective January 1, 2013, the amount of dividends payable on the senior preferred stock for a dividend period is determined based on our net worth as of the end of the immediately preceding fiscal quarter. The new dividend payment...

  • Page 294
    ...; and (2) quarterly commitment fees previously added to the liquidation preference and not previously paid down. In addition, if we issue any shares of capital stock for cash while the senior preferred stock is outstanding (which requires Treasury's approval), we are required to use the net proceeds...

  • Page 295
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Commitment Fee Pursuant to the August 2012 amendment to the senior preferred stock purchase agreement described in "Note 1, Summary of Significant Accounting Policies," effective January 1, 2013, the periodic ...

  • Page 296
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) risk profile and to describe the actions we will take to reduce the financial and operational risks associated with each of our business segments. Each plan delivered after December 15, 2012 must include an ...

  • Page 297
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The table below displays changes in accumulated other comprehensive income, net of tax, for the year ended December 31, 2013. For the year ended December 31, 2013 Availablefor-Sale Securities(1) Other(2) ...

  • Page 298
    ... our paid-in capital; and (d) our retained earnings (accumulated deficit). Core capital does not include: (a) accumulated other comprehensive income (loss) or (b) senior preferred stock. Generally, the sum of (a) 2.50% of on-balance sheet assets, except those underlying Fannie Mae MBS held by third...

  • Page 299
    ... balance of our single-family conventional mortgage loans held or securitized in Fannie Mae MBS as of December 31, 2013 and 2012, respectively, were located, no other significant concentrations existed in any state. To manage credit risk and comply with legal requirements, we typically require...

  • Page 300
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) generally require mortgage servicers to submit periodic property operating information and condition reviews, allowing us to monitor the performance of individual loans. We use this information to evaluate the ...

  • Page 301
    ... STATEMENTS - (Continued) our single-family conventional guaranty book of business. For more information about the credit risk characteristics of loans in our single-family guaranty book of business, see "Note 3, Mortgage Loans" and "Note 6, Financial Guarantees." The Alt-A mortgage loans and Fannie...

  • Page 302
    ...from private mortgage insurers (and, in cases where policies were rescinded or canceled or coverage was denied by the mortgage insurer, from mortgage sellers or servicers) for single-family loans of $5.7 billion and $5.1 billion for the years ended December 31, 2013 and 2012, respectively. Financial...

  • Page 303
    ...2012. Parties Associated with Our Off-Balance Sheet Transactions. We enter into financial instrument transactions that create offbalance sheet credit risk in the normal course of our business. These transactions are designed to meet the financial needs of our customers, and manage our credit, market...

  • Page 304
    ... Gross Amount Gross Amount Offset(1) Net Amount Presented in the Consolidated Balance Sheets Collateral(3) (Dollars in millions) Assets: OTC risk management derivatives ...Mortgage commitment derivatives ...Total derivative assets ...Securities purchased under agreements to resell or similar...

  • Page 305
    ... agreement and we may offset all outstanding amounts related to the terminated transactions including collateral posted or received. The terms of our contracts for mortgage commitment derivatives are primarily governed by the Fannie Mae Single-Family Selling Guide ("Guide"), for Fannie Mae-approved...

  • Page 306
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 18. Fair Value We use fair value measurements for the initial recording of certain assets and liabilities and periodic remeasurement of certain assets and liabilities on a recurring or nonrecurring basis. Fair ...

  • Page 307
    ... (Level 3) Adjustment(1) (Level 2) (Dollars in millions) Quoted Prices in Active Markets for Identical Assets (Level 1) Estimated Fair Value Recurring fair value measurements: Assets: Trading securities: Mortgage-related securities: Fannie Mae ...Freddie Mac ...Ginnie Mae ...Alt-A private-label...

  • Page 308
    ...) Estimated Fair Value Liabilities: Long-term debt: Of Fannie Mae: Senior fixed ...Senior floating...Total of Fannie Mae...Of consolidated trusts ...Total long-term debt ...Other liabilities: Risk management derivatives: Swaps ...Swaptions ...Other ...Netting adjustment ...Mortgage commitment...

  • Page 309
    ...Observable Inputs Netting Inputs (Level 3) Adjustment(1) (Level 2) (Dollars in millions) Estimated Fair Value Assets: Cash equivalents(2) ...Trading securities: Mortgage-related securities: Fannie Mae ...Freddie Mac...Ginnie Mae ...Alt-A private-label securities...Subprime private-label securities...

  • Page 310
    ... Netting Inputs Assets (Level 1) (Level 3) Adjustment(1) (Level 2) (Dollars in millions) Estimated Fair Value Liabilities: Long-term debt: Of Fannie Mae: Senior fixed ...Senior floating ...Total of Fannie Mae ...Of consolidated trusts ...Total long-term debt...Other liabilities: Risk management...

  • Page 311
    ... into Level 3 (4) Balance, December 31, 2013 Net Unrealized (Losses) Gains Included in Net Income (Loss) Related to Assets and Liabilities Still Held as of December 31, 2013(5) Purchases(2) Sales(2) Issues(3) Settlements(3) (Dollars in millions) Trading securities: Mortgage-related: Fannie Mae...

  • Page 312
    ... 31, 2012(5) Balance, December 31, 2011 Included in Other Comprehensive Income (Loss)(1) Purchases(2) Sales(2) Issues(3) Settlements(3) Transfers out of Level 3(4) Transfers into Level 3(4) Balance, December 31, 2012 (Dollars in millions) Trading securities: Mortgage-related: Fannie Mae...

  • Page 313
    ... in Net Income (Loss) Included in Other Comprehensive Income (Loss)(1) Purchases(2) Sales(2) Issues(3) Settlements(3) Transfers out of Level 3(4) Transfers into Level 3(4) Balance, December 31, 2011 (Dollars in millions) Trading securities: Mortgage-related: Fannie Mae ...Ginnie Mae ...Alt...

  • Page 314
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following tables display realized and unrealized gains and losses included in our consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2013, 2012 and 2011, ...

  • Page 315
    ...) Assets: Mortgage loans held for sale, at lower of cost or fair value ...Single-family mortgage loans held for investment, at amortized cost:(1) Of Fannie Mae ...Of consolidated trusts ...Multifamily mortgage loans held for investment, at amortized cost...Acquired property, net: Single-family...

  • Page 316
    ...Losses) (Dollars in millions) Assets: Mortgage loans held for sale, at lower of cost or fair value...Single-family mortgage loans held for investment, at amortized cost: Of Fannie Mae...Of consolidated trusts ...Multifamily mortgage loans held for investment, at amortized cost ...Acquired property...

  • Page 317
    ... 31, 2013 Valuation Techniques Significant Unobservable Inputs(1) (Dollars in millions) Range(1) Weighted Average(1) Fair Value Recurring fair value measurements: Trading securities: Mortgage-related securities: Agency(2) ...Other Alt-A private-label securities(3) ...Single Vendor $ Default rate...

  • Page 318
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Fair Value Measurements as of December 31, 2013 Valuation Techniques Significant Unobservable Inputs(1) (Dollars in millions) Range(1) Weighted Average(1) Fair Value Available-for-sale securities: Mortgage-...

  • Page 319
    ....1 112 Discounted cash flow Other Total single-family...Multifamily ...Build-Up Total mortgage loans of consolidated trusts ...Net derivatives ...Internal Model Dealer Mark Other Total net derivatives ...Long-term debt: Of Fannie Mae: Senior floating ...Discounted Cash flow Consensus Default Rate...

  • Page 320
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Fair Value Measurements as of December 31, 2012 Valuation Techniques Significant Unobservable Inputs(1) (Dollars in millions) Range(1) Weighted Average(1) Fair Value Recurring fair value measurements: ...

  • Page 321
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Fair Value Measurements as of December 31, 2012 Significant Unobservable Inputs(1) Range(1) (Dollars in millions) Weighted Average(1) Fair Value Valuation Techniques Available-for-sale securities: Mortgage-...

  • Page 322
    ... Discounted Cash Flow Single Vendor Total single-family ...Multifamily ...Build-Up Total mortgage loans of consolidated trusts ...Net derivatives ...Dealer Mark Internal Model Total net derivatives ...Long-term debt: Of Fannie Mae: Senior floating ...Discounted Cash Flow Of consolidated trusts...

  • Page 323
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Fair Value Measurements as of December 31, Valuation Techniques 2013 2012 (Dollars in millions) Nonrecurring fair value measurements: Mortgage loans held for sale, at lower of cost or fair value ...Single-...

  • Page 324
    ... date. We estimate the fair value of the GO using our internal valuation models, which calculate the present value of expected cash flows based on management's best estimate of certain key assumptions such as current mark-to-market LTV ratios, future house prices, default rates, severity rates...

  • Page 325
    .... Asset Manager Estimate ("AME"): For a portion of our multifamily loans, AME is used to estimate the fair value of the loan. This technique uses the net operating income and tax assessments of the specific property as well as MSA-specific market capitalization rates and average per unit sales...

  • Page 326
    ... estimated cost to sell. The initial fair value of foreclosed properties is determined using a hierarchy based on the reliability of available information. The hierarchy for single-family acquired property includes accepted offers, appraisals, broker price opinions and proprietary home price model...

  • Page 327
    ... notes. The resulting cash flows are discounted to present value using a yield curve derived from market prices observed for Fannie Mae Benchmark Notes and adjusted to reflect fair values at the offer side of the market. Because the derivatives considered in the valuations of these structured debt...

  • Page 328
    ... Financial Officer, with the objective of obtaining appropriate representation from Finance, Enterprise Risk Management and select business units within Fannie Mae. Based on its review of valuation methodologies and fair value results for various financial instruments used for financial reporting...

  • Page 329
    ... balance sheets. The fair values of these commitments are included as "Mortgage loans held for investment, net of allowance for loan losses." The disclosure excludes certain financial instruments, such as plan obligations for pension and postretirement health care benefits, employee stock option...

  • Page 330
    ... and restricted cash ...$ Federal funds sold and securities purchased under agreements to resell or similar arrangements ...Trading securities ...Available-for-sale securities ...Mortgage loans held for sale ...Mortgage loans held for investment, net of allowance for loan losses: Of Fannie Mae ...Of...

  • Page 331
    ... Federal funds sold and securities purchased under agreements to resell or similar 32,500 arrangements ...Trading securities ...40,695 Available-for-sale securities ...63,181 Mortgage loans held for sale...464 Mortgage loans held for investment, net of allowance for loan losses: Of Fannie Mae ...305...

  • Page 332
    ... discounted cash flow models that use observable inputs such as spreads based on market assumptions, resulting in Level 2 classification. Advances to lenders also include loans for which the carrying value does not approximate fair value. These loans do not qualify for Fannie Mae MBS securitization...

  • Page 333
    ... income (loss). The following table displays the fair value and unpaid principal balance of the financial instruments for which we have made fair value elections as of December 31, 2013 and 2012. As of December 31, 2013 Loans of Consolidated Trusts(1) Long-Term Debt of Fannie Mae Long-Term Debt of...

  • Page 334
    ... credit risk, for loans and debt for which the fair value election was made. Amounts are recorded as a component of "Fair value gains (losses), net" in our consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2013, 2012 and 2011. For the Year Ended...

  • Page 335
    ...of premiums and discounts, and sought unspecified compensatory damages, attorneys' fees, and other fees and costs. On January 7, 2008, the court defined the class as all purchasers of Fannie Mae common stock and call options and all sellers of publicly traded Fannie Mae put options during the period...

  • Page 336
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In re Fannie Mae 2008 Securities Litigation In a consolidated amended complaint filed on June 22, 2009, lead plaintiffs Massachusetts Pension Reserves Investment Management Board and Boston Retirement Board (...

  • Page 337
    ... FINANCIAL STATEMENTS - (Continued) and risk management disclosures to proceed. The court granted defendants' motions to dismiss the state law claims, as well as the federal claims based on alleged violations of GAAP, and also dismissed two of our former officers from the action. Fannie Mae filed...

  • Page 338
    ...remaining maturity, non cancelable future commitments related to loan and mortgage purchases, operating leases and other agreements as of December 31, 2013. As of December 31, 2013 Loans and Mortgage-Related Securities(1) Operating Leases Other(2) (Dollars in millions) 2014 ...2015 ...2016 ...2017...

  • Page 339
    ...Trading securities...Available-for-sale securities...Mortgage loans...Other ...Total interest income...Interest expense: Short-term debt ...Long-term debt...Total interest expense ...Net interest income ...Benefit for credit losses ...Net interest income after benefit for credit losses ...Investment...

  • Page 340
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the 2012 Quarter Ended March 31 Interest income: Trading securities...Available-for-sale securities...Mortgage loans...Other ...Total interest income...Interest expense: Short-term debt ...Long-term debt......

  • Page 341
    FR017