Fannie Mae 2014 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, 2014
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 30, 2014 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $4.5 billion.
As of January 31, 2015, there were 1,158,082,750 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, 2014 Commission File No.: 0-50231 Federal National Mortgage Association (Exact name of registrant as specified in its charter) Fannie Mae...

  • Page 2
    ...II ...Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...Item 6. Selected Financial Data ...Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ...Critical Accounting Policies and Estimates...

  • Page 3
    ... Committee Report ...Compensation Risk Assessment ...Compensation Tables...Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...Item 13. Certain Relationships and Related Transactions, and Director Independence ...Policies and Procedures Relating...

  • Page 4
    ... ...Housing and Mortgage Market Indicators...Business Segment Revenues ...Multifamily Housing Goals for 2012 to 2014 ...Housing Goals Performance ...Summary of Consolidated Results of Operations ...Analysis of Net Interest Income and Yield ...Rate/Volume Analysis of Changes in Net Interest Income...

  • Page 5
    ... Book of Business Key Risk Characteristics ...Multifamily Foreclosed Properties ...Mortgage Insurance Coverage...Estimated Mortgage Insurance Benefit ...Credit Loss Exposure of Risk Management Derivative Instruments ...Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level...

  • Page 6
    ...as Fannie Mae MBS. One of our key functions is to evaluate, price and manage the credit risk on the loans and securities that we guarantee. We also purchase mortgage loans and mortgage-related securities, primarily for securitization and sale at a later date. We use the term "acquire" in this report...

  • Page 7
    ... guaranty book of business and on our single-family acquisitions for each of the last five years. • • Our business model has changed significantly since we entered into conservatorship in 2008 and continues to evolve. To meet the requirements of our senior preferred stock purchase agreement...

  • Page 8
    ... single issuer of mortgage-related securities in the single-family secondary market in 2014 and a continuous source of liquidity in the multifamily market. We also continued to help struggling homeowners. In 2014, we provided approximately 165,000 loan workouts to help homeowners stay in their homes...

  • Page 9
    ... As we work to reduce credit losses, we also seek to assist struggling homeowners, help stabilize communities and support the housing market. Table 1 presents information for each of the last three years about the credit performance of mortgage loans in our singlefamily guaranty book of business and...

  • Page 10
    ...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 11
    ... For the Year Ended December 31, 2013 2012 2011 (Dollars in millions) 2014 2010 Single-family average charged guaranty fee on new 62.9 acquisitions (in basis points)(1)(2) ...Single-family Fannie Mae MBS issuances ...$ 375,676 Select risk characteristics of single-family conventional acquisitions...

  • Page 12
    ...Risk Management," including "Table 36: Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business." Our single-family acquisition volume and single-family Fannie Mae MBS issuances decreased significantly in 2014 compared with 2013; however, liquidations of loans...

  • Page 13
    ...strong overall credit risk profile given our current underwriting and eligibility standards and product design. We actively monitor the credit risk profile and credit performance of our singlefamily loan acquisitions. Contributions to the Housing and Mortgage Markets Liquidity and Support Activities...

  • Page 14
    ... estimate our market share of new single-family mortgage-related securities issuances was 40%, compared with 47% for 2013. We remained a continuous source of liquidity in the multifamily market in 2014. We owned or guaranteed approximately 19% of the outstanding debt on multifamily properties as of...

  • Page 15
    ... risk through increasing the role of private capital in the mortgage market. Build a new single-family securitization infrastructure for use by Fannie Mae and Freddie Mac and adaptable for use by other participants in the secondary market in the future. Beginning in 2012, FHFA has released annual...

  • Page 16
    ... and Analysis-Determination of 2014 Compensation- Assessment of Corporate Performance on 2014 Conservatorship Scorecard." For more information on FHFA's 2015 conservatorship scorecard objectives, see our Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on...

  • Page 17
    ... with our declining capital reserves. Revenues. We currently have two primary sources of revenues: (1) the guaranty fees we receive for managing the credit risk on loans underlying Fannie Mae MBS held by third parties; and (2) the difference between interest income earned on the assets in our...

  • Page 18
    ... in the current market environment, including uncertainty about the effect of recent and future changes in mortgage rates; actions the federal government has taken and may take with respect to fiscal policies, mortgage finance programs and policies, and housing finance reform; the Federal Reserve...

  • Page 19
    ...December 31, 2013. We provide information about Fannie Mae's serious delinquency rate, which also decreased during 2014, in "Executive Summary- Single-Family Guaranty Book of Business-Credit Performance." Despite recent improvement in the housing market and declining delinquency rates, approximately...

  • Page 20
    ... on properties sold in foreclosure. The reported home price change reflects the percentage change in Fannie Mae's HPI from the fourth quarter of the prior year to the fourth quarter of the reported year. Based on the annual average 30-year fixed-rate mortgage interest rate reported by Freddie Mac...

  • Page 21
    ... features 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 substantial majority of the single-family and multifamily mortgage loans we acquire...

  • Page 22
    ...Our MBS Trusts Our MBS trusts hold either single-family or multifamily mortgage loans or mortgage-related securities. Each trust operates in accordance with a trust agreement or a trust indenture. Each MBS trust is also governed by an issue supplement documenting the formation of that MBS trust, the...

  • Page 23
    ... to securitize multifamily mortgage loans delivered to us by lenders into Fannie Mae MBS in lender swap transactions Credit risk management: Prices and manages the credit risk on loans in our multifamily guaranty book of business Credit loss management: Works to prevent foreclosures and reduce costs...

  • Page 24
    ... performance and total assets of each of our segments, see "MD&A-Business Segment Results" and "Note 13, Segment Reporting." Table 4: Business Segment Revenues For the Year Ended December 31, 2014 2013 2012 Single-Family...$ 12,332 Multifamily ...1,384 Capital Markets ...11,182 Consolidated Trusts...

  • Page 25
    ... of Agriculture"), manufactured housing loans and other mortgage-related securities. Revenues for our Single-Family business are derived primarily from guaranty fees received as compensation for assuming the credit risk on the mortgage loans underlying single-family Fannie Mae MBS. We also allocate...

  • Page 26
    ...-Family Credit Risk Transfer Transactions Our Single-Family business has developed risk-sharing capabilities to transfer limited portions of our single-family mortgage credit risk to the private market in support of FHFA's 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac...

  • Page 27
    ... commercial investment terms. • • • • • • • Multifamily Mortgage Securitizations Our Multifamily business generally creates multifamily Fannie Mae MBS in lender swap transactions in a manner similar to our Single-Family business, as described in "Single-Family Business-Single...

  • Page 28
    ... our multifamily guaranty book of business, based on unpaid principal balance, including $14.3 billion in bond credit enhancements. • Capital Markets Our Capital Markets group manages our mortgage-related assets and other interest-earning non-mortgage investments. We fund our purchases primarily...

  • Page 29
    ...Capital Markets group creates single-class and multi-class structured Fannie Mae MBS, typically for our lender customers or securities dealer customers, in exchange for a transaction fee. In these transactions, the customer "swaps" a mortgage-related asset that it owns (typically a mortgage security...

  • Page 30
    ... capital markets. The most active investors in our debt securities include commercial bank portfolios and trust departments, investment fund managers, insurance companies, pension funds, state and local governments, and central banks. The approved dealers for underwriting various types of Fannie Mae...

  • Page 31
    ... deficiency amount will be calculated differently if we become subject to receivership or other liquidation process. The terms of the senior preferred stock purchase agreement provided for the payment of an unspecified quarterly commitment fee to Treasury; however, the August 2012 amendment to the...

  • Page 32
    ...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 preferred stock...

  • Page 33
    ... asset limit under the agreement was $469.6 billion as of December 31, 2014 and will be $399.2 billion as of December 31, 2015. For purposes of the agreement, the definition of mortgage asset is based on the unpaid principal balance of such assets and does not reflect market valuation adjustments...

  • Page 34
    ... Fannie Mae and Freddie Mac's role in the market and ultimately wind down both institutions. The report identifies 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...

  • Page 35
    ... rights, obligations and understandings between the companies with respect to CSS, including the governance of CSS. In connection with the agreement, the companies appointed a chief executive officer and four members of the CSS Board of Managers, two each from Fannie Mae and Freddie Mac. Fannie Mae...

  • Page 36
    ... the risks to our business associated with a single common security for Fannie Mae and Freddie Mac. For more information on FHFA's 2014 conservatorship scorecard objectives and our performance in meeting these objectives, see "Executive Compensation-Compensation Discussion and Analysis-Determination...

  • Page 37
    ...Charter Act imposes no maximum original 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...

  • Page 38
    ... 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 39
    ...The GSE Act requires us and Freddie 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. The GSE Act authorizes the Director of...

  • Page 40
    ... benchmarks for 2012 to 2014 for Fannie Mae and Freddie Mac. A home purchase mortgage may be counted toward more than one home purchase benchmark. • Low-Income Families Home Purchase Benchmark: At least 23% of our acquisitions of single-family owneroccupied purchase money mortgage loans must be...

  • Page 41
    ... our goals. Our single-family housing goals performance is measured against benchmarks and against goals-qualifying originations in the primary mortgage market after the release of data reported under the Home Mortgage Disclosure Act ("HMDA"). HMDA data are typically released each year in the fall...

  • Page 42
    ... approaches for measuring Fannie Mae and Freddie Mac's performance on the single-family housing goals for 2015 to 2017: • Alternative 1 would use the current two-step process, which measures performance by comparing it to both (1) benchmark levels that are set prospectively and (2) actual market...

  • Page 43
    ... The 2008 Reform Act created the duty to serve underserved markets in order for us and Freddie Mac to "provide leadership to the market in developing loan products and flexible underwriting guidelines to facilitate a secondary market for very low-, low-, and moderate-income families" with respect to...

  • Page 44
    ... 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 Governors of the Federal Reserve System issued proposed rules addressing a number...

  • Page 45
    ... of which is to have either Fannie Mae or Freddie Mac (so long as they are in conservatorship or receivership) securitize and fully guarantee the assets, in which case no further retention of credit risk is required. In addition, securities backed solely by mortgage loans meeting the definition of...

  • Page 46
    ... banks, commercial banks, credit unions, community banks, specialty servicers, insurance companies, and state and local housing finance agencies. Lenders originating mortgages in the primary mortgage market often sell them in the secondary mortgage market in the form of whole loans or in the form...

  • Page 47
    ... single-family mortgage assets are financial institutions and government agencies that manage residential mortgage credit risk or invest in residential mortgage loans, including Freddie Mac, FHA, the VA, Ginnie Mae (which primarily guarantees securities backed by FHA-insured loans and VA-guaranteed...

  • Page 48
    ...to have a strong overall credit risk profile given our current underwriting and eligibility standards and product design; Our expectation that the guaranty fees we receive for managing the credit risk on loans underlying Fannie Mae MBS held by third parties will continue to account for an increasing...

  • Page 49
    ... take some time for the remaining delinquent loans with high mark-to-market LTV ratios originated prior to 2009 to work their way through the foreclosure process; Our forecast that total originations in the U.S. single-family mortgage market in 2015 will increase from 2014 levels by approximately...

  • Page 50
    ...loans from MBS trusts as they become four or more consecutive monthly payments delinquent subject to 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...

  • Page 51
    ... 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 dependent on economic factors, such as unemployment rates, household wealth and income, and home prices...

  • Page 52
    ... used by these models; the level and volatility of interest rates and credit spreads; changes in the fiscal and monetary policies of the Federal Reserve; changes in the structure and regulation of the financial services industry; credit availability; global political risks; natural disasters...

  • Page 53
    ... agreement. In 2011, the Administration released a report to Congress on ending the conservatorships of the GSEs and reforming America's housing finance market. The report provides that the Administration will work with FHFA to determine the best way to responsibly reduce Fannie Mae and Freddie Mac...

  • Page 54
    ... restrictions on the amount and type of compensation we may pay our executives and other employees under conservatorship. For example, in April 2012, the STOCK Act was enacted, which includes a provision that prohibits senior executives at Fannie Mae and Freddie Mac from receiving bonuses during any...

  • Page 55
    ... year to 90% of the amount permitted under the senior preferred stock purchase agreement, which requires that we reduce our retained mortgage portfolio at a faster rate than previously required. This could result in the sale of assets at prices below the levels recorded in our financial statements...

  • Page 56
    ...restrictions set forth in the senior preferred stock purchase agreement could adversely affect our business, results of operations, financial condition, liquidity and net worth. A number of lawsuits have been filed against the U.S. government relating to the senior preferred stock purchase agreement...

  • Page 57
    ... are required to hold a minimum level of high-quality liquid assets based on projections of their short-term cash needs. The debt and mortgage-related securities of Fannie Mae and Freddie Mac are permitted to count toward only up to 40% of the banks' high-quality liquid asset requirement, and...

  • Page 58
    ... pay the loans or that distressed homeowners will 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...

  • Page 59
    ... from management and the employees responsible for implementing the changes, limiting the amount of time they can spend on other corporate priorities. In addition, some of these initiatives and directives require significant changes to our accounting methods and systems. Due to the operational...

  • Page 60
    ... longer managed with a strategy to maximize shareholder returns while fulfilling our mission. In May 2014, FHFA released its 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac, which identifies three strategic goals that are described in "Business-Executive Summary-Helping to...

  • Page 61
    ... government. Future changes or disruptions 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...

  • Page 62
    ...-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, financial guarantors and reinsurers; issuers of investments held in our cash and other...

  • Page 63
    ... of our risk in force mortgage insurance coverage of our single-family guaranty book of business as of December 31, 2014. From time to time we assess our mortgage insurer counterparties' respective abilities to fulfill their obligations to us, and our loss reserves take into account this assessment...

  • Page 64
    ...2006, changes in state foreclosure laws, and federal and state servicing requirements imposed by regulatory actions and legal settlements in recent years. The slow pace of foreclosures in some states has negatively affected our foreclosure timelines, credit-related income (expense) and single-family...

  • Page 65
    ... 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 66
    ... interest rate 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...

  • Page 67
    ... and the senior preferred stock purchase agreement. As a result of these limitations on our ability to diversify our operations, our financial condition and results of operations depend almost entirely on conditions in a single sector of the U.S. economy, specifically, the U.S. housing market. Weak...

  • Page 68
    ... rates generally result in fewer mortgage originations, particularly for refinances. Interest rates increased significantly in the second half of 2013, which reduced our business volume in the second half of 2013 and in 2014. Interest rates subsequently declined in late 2014 and early 2015 to levels...

  • Page 69
    ... risk-based capital requirements, leverage limits, liquidity requirements, single-counterparty exposure limits, resolution plan and credit exposure reporting requirements, overall risk management requirements, contingent capital requirements, enhanced public disclosures and short-term debt limits...

  • Page 70
    ... of both Fannie Mae and Freddie Mac against various financial institutions, their officers and affiliated and unaffiliated underwriters that were responsible for marketing and selling private-label mortgage-related securities to us. Fourteen of these lawsuits were resolved during 2013 and 2014, and...

  • Page 71
    ... 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 pay dividends to Treasury during conservatorship. The plaintiffs seek various forms...

  • Page 72
    ... or paying any dividends on Fannie Mae equity securities (other than the senior preferred stock) without the prior written consent of Treasury. In addition, in 2012 the terms of the senior preferred stock purchase agreement and the senior preferred stock were amended to ultimately require the...

  • Page 73
    ... it the right to purchase shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis on the date of exercise. Recent Sales of Unregistered Securities Under the terms of our senior preferred stock purchase agreement with Treasury...

  • Page 74
    ... annual report on Form 10-K. For the Year Ended December 31, 2014 2013 2012 (Dollars in millions) 2011 2010 Statement of operations data: Net revenues(1) ...$ 25,855 Net income (loss) attributable to Fannie 14,208 Mae ...New business purchase data: New business purchases(2) ...$409,834 Performance...

  • Page 75
    ... from MBS trusts) divided by the average guaranty book of business during the period, expressed in basis points. See "MD&A-Consolidated Results of Operations-Credit-Related Income- Credit Loss Performance Metrics" for a discussion of how our credit loss metrics are calculated. Mortgage loans consist...

  • Page 76
    ...with "Business-Executive Summary." Please also see "Glossary of Terms Used in This Report." This report contains forward-looking statements that are based upon management's current expectations and are subject to significant uncertainties and changes in circumstances. Please review "Business-Forward...

  • Page 77
    ... Fannie Mae MBS trusts we guarantee and loans we have guaranteed under long-term standby commitments and other credit enhancements we have provided. We also maintain an allowance for preforeclosure property tax and insurance receivable on delinquent loans that is included in "Other assets...

  • Page 78
    ... 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 79
    ... expected to be released against income before federal income taxes for the remainder of the year. We recognized a benefit for federal income taxes of $58.3 billion in our consolidated statement of operations and comprehensive income for the year ended December 31, 2013 related to the release of the...

  • Page 80
    ... funds those assets; and (2) the guaranty fees we receive for managing the credit risk on loans underlying Fannie Mae MBS held by third parties, which we refer to as mortgage loans of consolidated trusts. Table 8 displays an analysis of our net interest income, average balances, and related yields...

  • Page 81
    ...Income/ Expense Average Rates Earned/ Paid For the Year Ended December 31, 2013 Average Balance Interest Income/ Expense Average Rates Earned/ Paid Average Balance 2012 Interest Income/ Expense Average Rates Earned/ Paid (Dollars in millions) Interest-earning assets: Mortgage loans of Fannie Mae...

  • Page 82
    ...Interest income: Mortgage loans of Fannie Mae...$ (2,505) $ (1,503) $ (1,002) $ (1,465) $ (1,722) $ Mortgage loans of consolidated trusts ...Total mortgage loans ...Total mortgage-related securities, net...Non-mortgage securities(2) ...Federal funds sold and securities purchased under agreements to...

  • Page 83
    ... volume of sales of non-agency mortgage-related securities in 2014 as compared with 2013. See "Business Segment Results-The Capital Markets Group's Mortgage Portfolio" and "Consolidated Balance Sheet Analysis-Investments in Securities" for additional information on our mortgage-related securities...

  • Page 84
    ... implied volatility, as well as activity related to these financial instruments. We use derivatives to manage the interest rate risk exposure of our net portfolio, which consists of our retained mortgage portfolio, cash and other investments portfolio, and our outstanding debt of Fannie Mae. Some of...

  • Page 85
    ...-Market Risk Management, Including Interest Rate Risk Management-Interest Rate Risk Management." Mortgage Commitment Derivatives Fair Value (Losses) Gains, Net Certain commitments to purchase or sell mortgage-related securities and to purchase single-family mortgage loans are generally accounted...

  • Page 86
    ...through foreclosed property income for loans where the sale of the collateral exceeds our recorded investment in the loan. We exclude these fair value losses from our credit loss calculation as described in "Credit Loss Performance Metrics." Table 11: Total Loss Reserves As of December 31, 2014 2013...

  • Page 87
    ... loss reserves. Table 12: Changes in Combined Loss Reserves For the Year Ended December 31, 2014 2013 2012 (Dollars in millions) 2011 2010 Changes in combined loss reserves: Beginning balance ...$ 45,295 Adoption of consolidation accounting guidance ...- (Benefit) provision for credit losses...

  • Page 88
    ...Table 41 in "MD&A-Risk Management-Credit Risk Management-SingleFamily Mortgage Credit Risk Management." Table 13: Troubled Debt Restructurings and Nonaccrual Loans As of December 31, 2014 2013 2012 (Dollars in millions) 2011 2010 TDRs on accrual status: Single-family ...Multifamily ...Total TDRs on...

  • Page 89
    ... well as our single-family and multifamily initial charge-off severity rates. Table 14: Credit Loss Performance Metrics For the Year Ended December 31, 2014 Amount Ratio(1) Amount 2013 Ratio(1) Amount (Dollars in millions) 2012 Ratio(1) Charge-offs, net of recoveries ...$ 5,153 Foreclosed property...

  • Page 90
    ... Conventional Guaranty Book of Business Outstanding(1) As of December 31, 2014 2013 2012 Percentage of SingleFamily Credit Losses(2) For the Year Ended December 31, 2014 2013 2012 Geographical Distribution: California(3) ...Florida ...Illinois ...All other states...Select higher-risk product...

  • Page 91
    ... in the volume of loans in our single-family book of business subject to TCCA provisions. Federal Income Taxes We recognized a provision for federal income taxes of $6.9 billion in 2014. We recognized a benefit for federal income taxes of $58.3 billion in our consolidated statement of operations and...

  • Page 92
    ... income(2) ...Credit-related income(3) ...TCCA fees(2) ...Other expenses(4) ...Income before federal income taxes ...(Provision) benefit for federal income taxes...Net income attributable to Fannie Mae...$ Other key performance data: Securitization Activity/New Business Single-family Fannie Mae MBS...

  • Page 93
    ... deferred tax assets that we attributed to our Single-Family segment. Our single-family acquisition volume and single-family Fannie Mae MBS issuances decreased significantly in 2014 compared with 2013; however, liquidations of loans from our single-family guaranty book of business also declined due...

  • Page 94
    ... investments(1) ...Credit-related income(2) ...Other expenses(3) ...Income before federal income taxes...(Provision) benefit for federal income taxes ...Net income attributable to Fannie Mae ...$ Other key performance data: Securitization Activity/New Business Multifamily new business volume...

  • Page 95
    ...of adjustable-rate loans to fixed-rate loans and discount MBS ("DMBS") to MBS of $3 million, $68 million and $215 million for the years ended December 31, 2014, 2013 and 2012, respectively. Includes $18.7 billion and $22.4 billion of Fannie Mae multifamily MBS held in the retained mortgage portfolio...

  • Page 96
    ... recoveries, on nonaccrual loans received from the Single-Family segment of $2.6 billion, $3.8 billion and $5.2 billion for the years ended December 31, 2014, 2013 and 2012, respectively. The Capital Markets group's net interest income is reported based on the mortgage-related assets held in the...

  • Page 97
    ... on sales of non-agency mortgage-related securities. Net income in 2013 included a benefit for federal income taxes that primarily represents the release of the substantial majority of the valuation allowance against the portion of our deferred tax assets that we attributed to our Capital Markets...

  • Page 98
    ... Treasury Agreements-Treasury Agreements." Table 19 displays our Capital Markets group's mortgage portfolio activity based on unpaid principal balance. Table 19: Capital Markets Group's Mortgage Portfolio Activity For the Year Ended December 31, 2014 2013 (Dollars in millions) 2012 Mortgage loans...

  • Page 99
    ... considered to be less liquid. Table 20: Capital Markets Group's Mortgage Portfolio Composition As of December 31, More Liquid 2014 Less Liquid More Total Liquid (Dollars in millions) 2013 Less Liquid Total Mortgage loans: Single-family loans: Government insured or guaranteed ...$ - $ 36,442 $ 36...

  • Page 100
    ...from our single-family MBS trusts. We expect to continue purchasing loans from MBS trusts as they become four or more consecutive monthly payments delinquent subject to market conditions, economic benefit, servicer capacity and other factors, including the limit on the amount of mortgage assets that...

  • Page 101
    ...) Variance Assets Cash and cash equivalents and 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...

  • Page 102
    ... related to our available-for-sale securities as of December 31, 2014 and 2013. Mortgage Loans The mortgage loans reported in our consolidated balance sheets include loans owned by Fannie Mae and loans held in consolidated trusts and are classified as either held for sale or held for investment...

  • Page 103
    ...funding line of credit and borrowings against mortgage-related securities and other investment securities we hold pursuant to repurchase agreements and loan agreements. the repayment of matured, redeemed and repurchased debt; the purchase of mortgage loans (including delinquent loans from MBS trusts...

  • Page 104
    ... of highly liquid securities to cover a minimum of 30 calendar days of net cash needs, assuming no access to the short- and long-term unsecured debt markets; within our cash and other investment portfolio a daily balance of U.S. Treasury securities and/or cash with the Federal Reserve Bank of New...

  • Page 105
    ...-term debt of Fannie Mae relates to borrowings with an original contractual maturity of greater than one year. Table 24: Activity in Debt of Fannie Mae For the Year Ended December 31, 2014 2013 (Dollars in millions) 2012 Issued during the period: Short-term: Amount ...Weighted-average interest rate...

  • Page 106
    ... securities to obtain funds for our operations and the relative cost to obtain these funds; (3) our liquidity contingency plans; and (4) our credit ratings. Also see "Business-Housing Finance Reform" for more information on GSE reform. Outstanding Debt Total outstanding debt of Fannie Mae includes...

  • Page 107
    ... Maturities Outstanding (Dollars in millions) Federal funds purchased and securities sold under agreements to repurchase(2) ...Short-term debt: Fixed-rate: Discount notes ...Foreign exchange discount notes ...Total short-term debt of Fannie Mae ...Debt of consolidated trusts...Total short-term...

  • Page 108
    ... 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 ...$ Total short-term debt of Fannie Mae ...$ - 72,295 -% $ 0.13% $ 15 95,082 2012...

  • Page 109
    ... Outstanding Debt of Fannie Mae Maturing Within One Year(1) _____ (1) Includes unamortized discounts, premiums and other cost basis adjustments. Table 28 displays the maturity profile, as of December 31, 2014, of the portion of our long-term debt that matures in more than one year, on a quarterly...

  • Page 110
    Table 28: 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. We intend to repay our short-term and long-term debt obligations as they become due primarily through proceeds from ...

  • Page 111
    ... in 2014. 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 Management-Institutional Counterparty Credit Risk...

  • Page 112
    ...Mae MBS, (2) proceeds from repayments of loans of Fannie Mae, (3) proceeds from the sale and liquidation of mortgage-related securities, (4) the sale of our REO inventory and (5) proceeds from resolution and settlement agreements related to representation and warranty, compensatory fees and PLS sold...

  • Page 113
    ...Frank Act's stress test requirements for Fannie Mae, Freddie Mac and the FHLBs. 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...

  • Page 114
    ...Mae MBS and other financial guarantees of $31.7 billion as of December 31, 2014 and $44.3 billion as of December 31, 2013. 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-Credit...

  • Page 115
    ... in our cash and other investments portfolio in excess of these commitments to advance funds. RISK MANAGEMENT Our business activities expose us to the following three major categories of financial risk: credit risk, market risk (including interest rate and liquidity risk) and operational risk. We...

  • Page 116
    ... and limits. In addition, the Audit Committee reviews the system of internal controls that we rely upon to provide reasonable assurance of compliance with our enterprise risk management processes. The Board of Directors delegates day-to-day management responsibilities to the Chief Executive Officer...

  • Page 117
    ... our management systems, risk governance and policies and procedures. The Chief Audit Executive reports directly and independently to the Audit Committee of the Board of Directors, and audit personnel are compensated based on objectives set for the group by the Audit Committee rather than corporate...

  • Page 118
    ...ended December 31, 2014 and $759.5 billion for the year ended December 31, 2013. 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 below, unless otherwise noted, pertain generally...

  • Page 119
    changing market conditions. The credit risk profile of our single-family mortgage credit book of business is influenced by, among other things, the credit profile of the borrower, features of the loan, such as the loan product type and the type of property securing the loan, the housing market and ...

  • Page 120
    ... book of business as of December 31, 2014 and 2013. The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loans as of the end of the applicable period divided by the estimated current value of the properties, which we calculate using an internal valuation...

  • Page 121
    ...representation and warranty framework effective for single-family mortgage loans delivered on or after July 1, 2014. The primary changes to the framework consisted of relaxing the 36-month timely payment history requirement to permit two instances of 30-day delinquency and adding an alternative path...

  • Page 122
    ... single-family guaranty book of business. Primary mortgage insurance transfers varying portions of the credit risk associated with a mortgage loan to a third-party insurer. In order for us to receive a payment in settlement of a claim under a primary mortgage insurance policy, the insured loan must...

  • Page 123
    the policy. We typically collect claims under pool mortgage insurance three to six months after disposition of the property that secured the loan. For a discussion of our aggregate mortgage insurance coverage as of December 31, 2014 and 2013, see "Risk Management-Credit Risk Management-Institutional...

  • Page 124
    ... 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 125
    ...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, 2014 2013 2012 Percent of Single-Family Conventional Guaranty Book of Business(3)(4) As of December 31, 2014 2013 2012 Original LTV...

  • Page 126
    ... guaranty book of business as of December 31, 2014, 2013 and 2012. 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 original LTV ratio generally is...

  • Page 127
    ... 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-term fixed-rate consists of mortgage loans...

  • Page 128
    ..., or 5.0% of our single-family conventional guaranty book of business as of December 31, 2013. The standard conforming loan limit for a one-unit property was $417,000 in 2014 and 2013. From 2008 to 2011, our loan limits were higher in specified high-cost areas, reaching as high as $729,750 for...

  • Page 129
    ... market rate at the time of modification. Table 37 displays information for ARMs, rate reset modifications and fixed-rate interest-only loans in our single-family guaranty book of business, aggregated by product type and categorized by the year of their next scheduled contractual reset date...

  • Page 130
    ..., 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 131
    ...states. High levels of foreclosures, changes in state foreclosure laws, new federal and state servicing requirements imposed by regulatory actions and legal settlements, and the need for servicers to adapt to these changes have lengthened the time it takes to foreclose on a mortgage loan in a number...

  • Page 132
    ... state accounts for a large share of our single-family conventional guaranty book of business. The reported categories are not mutually exclusive. Table 39: Single-Family Conventional Seriously Delinquent Loan Concentration Analysis As of December 31, 2014 Percentage of Book Outstanding Percentage...

  • Page 133
    ... a foreclosure. We work to obtain the highest price possible for the properties sold in short sales and, in 2014, we received net sales proceeds from our short sale transactions equal to 72% of the loans' unpaid principal balance, compared with 67% in 2013. The existence of a second lien may limit...

  • Page 134
    ... of TDRs, see "Note 3, Mortgage Loans." Table 41: Single-Family Troubled Debt Restructuring Activity For the Year Ended December 31, 2014 2013 (Dollars in millions) 2012 Beginning balance ...$ 200,507 $ 207,405 $ 177,484 New TDRs ...19,050 26,320 54,032 (1) (13,192) (13,752) Foreclosures ...(10,484...

  • Page 135
    ... rate resets in 2015. These interest rate increases could adversely affect the performance of these modifications. See "Table 37: Single-Family Adjustable-Rate Mortgage and Rate Reset Modifications by Year" in "Credit Portfolio Summary-Mortgage Rate Resets" for additional information on the timing...

  • Page 136
    ... component of "Other assets." See footnote 10 to "Table 36: Risk Characteristics of Single-Family Conventional Business Volume and Guaranty Book of Business" for states included in each geographic region. Estimated based on the total number of properties acquired through foreclosure or deeds-in-lieu...

  • Page 137
    ... information for California, as this state accounts for a large share of our single-family conventional guaranty book of business. Table 45: Single-Family Acquired Property Concentration Analysis As of For the Year Ended December 31, 2014 Percentage of Book Outstanding(1) Percentage of Properties...

  • Page 138
    ...-related income and credit losses in "Business Segment Results-Multifamily Business Results." Multifamily Acquisition Policy and Underwriting Standards Our Multifamily business is responsible for pricing and managing the credit risk on multifamily mortgage loans we purchase and on Fannie Mae MBS...

  • Page 139
    ...and held for sale. Held-for-use properties are reported in our consolidated balance sheets as a component of "Other assets." The low level of foreclosure activity in 2014 reflects the stability of national multifamily market fundamentals. Institutional Counterparty Credit Risk Management We rely on...

  • Page 140
    ... in transferring a large servicing portfolio. Pursuant to FHFA's 2014 conservatorship scorecard and at FHFA's direction, we worked with both FHFA and Freddie Mac to develop a set of proposed new minimum financial eligibility requirements for approved single-family sellers and servicers. These...

  • Page 141
    ...as property taxes and insurance, repairs and maintenance, and valuation adjustments due to home price changes. See "Risk Factors" for a discussion of risks relating to the slow pace of foreclosures in some states. Our five largest single-family mortgage sellers, including their affiliates, accounted...

  • Page 142
    ... the time of purchase. We use several types of credit enhancements to manage our single-family mortgage credit risk, including primary and pool mortgage insurance coverage. Table 49 displays our risk in force for mortgage insurance coverage on single-family loans in our guaranty book of business and...

  • Page 143
    ... implementation of new mortgage insurance master primary policies. Loans delivered to us with application dates on or after October 1, 2014 that require primary mortgage insurance must be insured under one of the new policies. These policies provide the terms of coverage under which loans having LTV...

  • Page 144
    ... Fannie Mae and Freddie Mac to their eligibility standards for approved private mortgage insurers. The proposed standards include enhanced financial requirements, including risk-based and minimum asset standards, and are designed to ensure that mortgage insurers have sufficient liquid assets to pay...

  • Page 145
    ...the mortgage seller or servicer. We had outstanding receivables of $1.4 billion recorded in "Other assets" in our consolidated balance sheets as of December 31, 2014 and $2.1 billion as of December 31, 2013 related to amounts claimed on insured, defaulted loans excluding government insured loans. Of...

  • Page 146
    ... to independent non-bank financial institutions. As of December 31, 2014, approximately 36% of the unpaid principal balance of loans in our multifamily guaranty book of business serviced by our DUS lenders was from institutions with an external investment grade credit rating or a guaranty from...

  • Page 147
    ... of securities purchased under agreements to resell or similar arrangements. We monitor the credit risk position of our cash and other investments portfolio. If one of these counterparties fails to meet its obligations to us under the terms of the investments, it could result in financial losses...

  • Page 148
    ...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 149
    ... are used to manage interest rate risk. Our performing mortgage assets consist mainly of single-family and multifamily mortgage loans. For single-family loans, borrowers have the option to prepay at any time before the scheduled maturity date or continue paying until the stated maturity. Given this...

  • Page 150
    ... cash flows between assets and liabilities in order to manage the duration risk associated with an investment in long-term fixed-rate assets. Callable debt helps us manage the prepayment risk associated with fixed-rate mortgage assets because the duration of callable debt changes when interest rates...

  • Page 151
    ...the interest rate sensitivity of our retained mortgage portfolio and our investments in non-mortgage securities is offset will be dependent upon, among other factors, the mix of funding and other risk management derivative instruments we use at any given point in time. The market value sensitivities...

  • Page 152
    ... from future business activity will largely replace guaranty fee income lost due to mortgage prepayments. Table 52 displays the pre-tax market value sensitivity of our net portfolio to changes in the level of interest rates and the slope of the yield curve as measured on the last day of each...

  • Page 153
    ...-related securities and loans is hedged with our debt issuances, which include callable debt. We use derivatives to help manage the residual interest rate risk exposure between our assets and liabilities. Derivatives have enabled us to keep our interest rate risk exposure at consistently low levels...

  • Page 154
    ... 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 155
    ...of Credit Risk." "Business volume" or "new business acquisitions" refers to the sum in any given period of the unpaid principal balance of: (1) the mortgage loans and mortgage-related securities we purchase for our retained mortgage portfolio; (2) the mortgage loans we securitize into Fannie Mae MBS...

  • Page 156
    ... 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 157
    ...purchased interest, basis, and selling costs. "Single-class Fannie Mae MBS" refers to Fannie Mae MBS where the investors receive principal and interest payments in proportion to their percentage ownership of the MBS issue. "Single-family mortgage loan" refers to a mortgage loan secured by a property...

  • Page 158
    ... that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding our required disclosure...

  • Page 159
    ... control over financial reporting. Internal control over financial reporting, as defined in rules promulgated under the Exchange Act, is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and...

  • Page 160
    ... prior to release. FHFA personnel, including senior officials, have reviewed our SEC filings prior to filing, including this annual report on Form 10-K for the year ended December 31, 2014 ("2014 Form 10-K"), and engaged in discussions regarding issues associated with the information contained in...

  • Page 161
    ... financial statements for the year ended December 31, 2014 have been prepared in conformity with GAAP. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING Management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, whether any changes in our internal...

  • Page 162
    ... to management of information known to the Federal Housing Finance Agency that is needed to meet their disclosure obligations under the federal securities laws as they relate to financial reporting. This material weakness was considered in determining the nature, timing, and extent of audit tests...

  • Page 163
    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, 2014, of the Company and our report dated February 20, 2015, expressed an unqualified opinion on ...

  • Page 164
    ...following subject areas: business; finance; capital markets; accounting; risk management; public policy; mortgage lending, real estate, low-income housing and/or homebuilding; technology; and the regulation of financial institutions. See "Corporate Governance-Composition of Board of Directors" below...

  • Page 165
    ... as Managing Director of Corporate Finance. Mr. Harvey was a member of the Board of Directors of the Federal Home Loan Bank of Atlanta from 1996 to 1999, a director of the National Housing Trust from 1990 to 2008, and also served as an executive committee member of the National Housing Conference...

  • Page 166
    ... 2013. Ms. Nordin serves as a member of the Audit Committee and the Compensation Committee. The Nominating & Corporate Governance Committee concluded that Ms. Nordin should serve as a director due to her extensive experience in business, finance, capital markets, mortgage securities investment...

  • Page 167
    ... 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 Committee. The Nominating & Corporate Governance Committee concluded...

  • Page 168
    ... stock purchase agreement; increases in Board risk limits, material changes in accounting policy, and reasonably foreseeable material increases in operational risk; matters that relate to the conservator's powers, our conservatorship status, or the legal effect of the conservatorship on contracts...

  • Page 169
    ... 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 170
    ... of our executive officers or directors by posting this information on our Web site. Although our equity securities are no longer listed on the New York Stock Exchange ("NYSE"), we are required by FHFA's corporate governance regulations and examination guidance for corporate governance, compensation...

  • Page 171
    ... Director, Finance from December 1996 to November 2000 and of Manager, Early Funding Programs from March 1994 to December 1996. Mr. Bon Salle joined Fannie Mae in September 1992 as a senior capital markets analyst. Brian P. Brooks, 45, has been Executive Vice President, General Counsel and Corporate...

  • Page 172
    ... Chief Acquisition Officer from August 2009 to May 2011, and as Senior Vice President, Single-Family Mortgage Business from November 1998 through August 2009. Mr. Oppenheimer was Vice President of Marketing from April 1991 through November 1998. He held the positions of Director, Sales and Marketing...

  • Page 173
    .... The 2014 Board of Directors' goals were Achieve key financial targets; Acquire and manage 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...

  • Page 174
    ... liquidity 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 face competition from both within the financial services industry...

  • Page 175
    ... 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 176
    ... end of the performance year; and • an at-risk portion that is subject to reduction based on corporate and individual performance. Retain named executives. Key Features Base salary reflects each named executive's level of responsibility and experience, as well as individual performance over time...

  • Page 177
    ...his or her family. Attract and retain named executives by providing additional retirement savings. Non-qualified Deferred Compensation ("Supplemental Retirement Savings Plan") Prior to 2014, we maintained a tax-qualified defined benefit pension plan that was generally available to employees before...

  • Page 178
    ... plan for Fannie Mae and Freddie Mac. See "Business-Executive Summary-Helping to Build a Sustainable Housing Finance System" for a description of FHFA's strategic goals for the Enterprises. FHFA developed these objectives and related targets with input from management and the Board of Directors...

  • Page 179
    ... home buyers from 95% to 97%. For more information on these activities, see "Business-Executive Summary-SingleFamily Guaranty Book of Business-Providing Targeted Access to Credit Opportunities for Creditworthy Borrowers." The objective was achieved. In 2014, Fannie Mae conducted research, analysis...

  • Page 180
    ... FHFA, Fannie Mae and Freddie Mac are continuing to review the public input provided on the proposed revisions to the eligibility standards for approved private mortgage insurers. For more information on these policies and requirements, see "MD&A-Risk Management-Credit Risk Management- Institutional...

  • Page 181
    ...purposes of the individual performance-based component of the named executives' 2014 at-risk deferred salary. The Board did not assign any relative weight to the goals. In late 2014 and early 2015, the Compensation Committee reviewed performance against the 2014 Board of Directors' goals and related...

  • Page 182
    ... Mae's single-family loans. Fannie Mae's multifamily new business volume in 2014 also reflected loans with a solid credit profile. Goal 2: Acquire and manage a profitable, high quality book of new business from 2009 forward. Manage within risk limits. Ensure businesses are managed within board risk...

  • Page 183
    ... requirements to increase the maximum LTV ratio for loans to first-time home buyers from 95% to 97%. For more information on this change and Fannie Mae's other activities to expand access, see "Business- Executive Summary-Single-Family Guaranty Book of Business-Providing Targeted Access to Credit...

  • Page 184
    ...include managing the company's single-family business within risk limits, improving the representation and warranty framework, leading the development and execution of credit risk transfer transactions, and developing plans for integrating Fannie Mae's systems with the common securitization platform...

  • Page 185
    ...'s business activities, including modeling, reporting, policies and governance; developed a framework for assessing our corporate risk appetite and a comprehensive set of risk limits; launched a significant modeling effort; and strengthened his team. Other Executive Compensation Considerations...

  • Page 186
    ...of Bank of America Corporation, Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Company, to the extent those firms have executives in comparable positions, Freddie Mac and other comparable U.S.-based financial services firms; and The compensation of our Executive Vice President and Chief Risk...

  • Page 187
    ... for our Chief Executive Officer and Chief Financial Officer also may be subject to a requirement that they be reimbursed to the company in the event that Section 304 of the Sarbanes-Oxley Act of 2002 applies to that compensation. Stock Ownership and Hedging Policies We ceased paying new stock-based...

  • Page 188
    ... future years. FHFA approved this change on February 17, 2015. The 2014 executive compensation program, which is not affected by this change, provides that the reduction provisions applicable to payments of earned but unpaid fixed deferred salary do not apply if an officer retires from Fannie Mae at...

  • Page 189
    ... Data," our named executives' total target direct compensation for 2014 in aggregate was substantially below the market median for comparable firms, and more than 90% below the market median in the case of our Chief Executive Officer. Other factors that increase our risk of executive officer...

  • Page 190
    ... Vice President and Chief Financial Officer Andrew Bon Salle(8) ...Executive Vice President -Single-Family Business Terence Edwards ...Executive Vice President and Chief Operating Officer John Nichols...Executive Vice President and Chief Risk Officer 2014 2013 2012 2014 2013 2012 2014 600,000 599...

  • Page 191
    ...for both 2011 and 2012. The second installment of the 2011 long-term incentive award was determined in early 2013 and paid in February 2013. None of our named executives received above-market or preferential earnings on nonqualified deferred compensation. The reported amounts represent the change in...

  • Page 192
    ...was Fannie Mae's Executive Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary. Mr. Mayopoulos did not receive any increase in his 2012 compensation as a result of his promotion to Chief Executive Officer and, since 2013, his direct compensation has consisted solely...

  • Page 193
    ...the Supplemental Retirement Savings Plan for earnings in excess of the applicable IRS limits (subject to an overall limit of two times base salary), during the period from July 1, 2013 through June 2018. To satisfy the rule of 65 for this additional contribution, as of June 30, 2013 an employee must...

  • Page 194
    ... employment prior to June 30, 2013. As a result of the freeze of benefits under the Retirement Plan, earnings and service after June 30, 2013 are not taken into account in determining plan benefits. Provisions of the Internal Revenue Code of 1986, as amended, limit the amount of annual compensation...

  • Page 195
    ... Supplemental Retirement Savings Plan in 2014. We credit 8% of the eligible compensation for our named executives that exceeds the applicable IRS annual limit. Eligible compensation in any year consists of base salary plus any eligible incentive compensation (which includes deferred salary) earned...

  • Page 196
    ... the named executive's employment had terminated on December 31, 2014 under each of the circumstances described below, taking into account the named executive's compensation and service levels as of that date. The discussion below does not reflect retirement or deferred compensation plan benefits to...

  • Page 197
    ...the executive is age 65 or older at the time of separation; the earned but unpaid portion of his at-risk deferred salary, subject to reduction from the target level for corporate and individual performance for the applicable performance year; and interest on the earned but unpaid portion of his 2014...

  • Page 198
    ...and the Board in early 2015 as a result of corporate and individual performance). See the "At-Risk Deferred Salary (Performance-Based)" sub-column of the "Summary Compensation Table for 2014, 2013 and 2012" above for the amount of 2014 at-risk deferred salary that was awarded to each named executive...

  • Page 199
    ... from issuing new stock without the prior written consent of Treasury other than as required by the terms of any binding agreement in effect on the date of the senior preferred stock purchase agreement. Equity Compensation Plan Information As of December 31, 2014 Number of Securities Remaining...

  • Page 200
    ... T Preferred Stock Name and Position Common Stock Amy E. Alving...Director David C. Benson ...Executive Vice President-Chief Financial Officer Andrew J. Bon Salle ...Executive Vice President-Single-Family Business Terence W. Edwards ...Executive Vice President-Chief Operating Officer William...

  • Page 201
    ...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 of authorities and reservation...

  • Page 202
    ... Governance Committee 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...

  • Page 203
    ... loan modifications by servicers; • creating, making available and managing the process for servicers to report modification activity and program performance; • calculating incentive compensation consistent with program guidelines; • acting as record-keeper for executed loan modifications...

  • Page 204
    ...fees for the fourth quarter of 2014 was $367 million. Treasury Interest in Affordable Housing Allocations The GSE Act requires us to set aside each year an amount equal to 4.2 basis points for each dollar of the unpaid principal balance of our total new business purchases to fund HUD's Housing Trust...

  • Page 205
    ... our directors, our Chief Executive Officer, is independent. Based on its review, the Board has determined that all of our non-employee directors meet the director independence requirements set forth in FHFA's corporate governance regulations and in our Corporate Governance Guidelines. Independence...

  • Page 206
    ...worked on our audit within that time. • A director will not be considered independent if, within the preceding five years: • the director was employed by a company at a time when one of our current executive officers sat on that company's compensation committee; or • an immediate family member...

  • Page 207
    ...the past five years fall below our Guidelines' thresholds of materiality for a Board member who is a current executive officer, employee, controlling shareholder or partner of a company that engages in business with Fannie Mae. In addition, as a limited partner or member in the LIHTC funds, which in...

  • Page 208
    ...public accounting firm and management are required to present reports on the nature of the services provided by the independent registered 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...

  • Page 209
    ... 15. Exhibits, Financial Statement Schedules (a) 1. Documents filed as part of this report Consolidated Financial Statements An index to financial statements has been filed as part of this report beginning on page F-1 and is incorporated herein by reference. 2. Financial Statement Schedules None...

  • Page 210
    ... 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 20, 2015...

  • Page 211
    ...Title Date /s/ William Thomas Forrester William Thomas Forrester Director February 20, 2015 /s/ Brenda J. Gaines Brenda J. Gaines Director February 20, 2015 /s/ Charlynn Goins Charlynn Goins Director February 20, 2015 /s/ Frederick B. Harvey III Frederick B. Harvey III Director February...

  • Page 212
    ...12 to Fannie Mae's Annual Report on Form 10-K (Commission file number 000-50231) for the year ended December 31, 2012, filed April 2, 2013.) Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series Q (Incorporated by reference to Exhibit 4.13 to Fannie Mae's Annual Report on Form 10...

  • Page 213
    ... to Fannie Mae's Current Report on Form 8-K (Commission file number 001-34140), filed December 30, 2009.) Third Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of August 17, 2012, between the United States Department of the Treasury and Federal National Mortgage...

  • Page 214
    ... 31, 2013, to Fannie Mae Supplemental Pension Plan of 2003†(Incorporated by reference to Exhibit 10.17 to Fannie Mae's Annual Report on Form 10-K (Commission file number 000-50231) for the year ended December 31, 2013, filed February 21, 2014.) Fannie Mae Stock Compensation Plan of 2003, as...

  • Page 215
    ... National Mortgage 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.) Statement...

  • Page 216
    ...Changes in Equity (Deficit) ...Notes to Consolidated Financial 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...

  • Page 217
    ... 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive income, cash flows, and changes in equity (deficit) for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company's management. Our...

  • Page 218
    ... funds sold and securities purchased under agreements to resell or similar arrangements ...Investments in securities: Trading, at fair value ...Available-for-sale, at fair value (includes $596 and $998, respectively, related to consolidated trusts)...Total investments in securities...Mortgage loans...

  • Page 219
    FANNIE MAE (In conservatorship) Consolidated Statements of Operations and Comprehensive Income (Dollars and shares in millions, except per share amounts) For the Year Ended December 31, 2014 2013 2012 Interest income: Trading securities...Available-for-sale securities...Mortgage loans (includes $...

  • Page 220
    ... by operating activities: Amortization of cost basis adjustments ...Benefit for credit losses ...Valuation gains ...Current and deferred federal income taxes...Net change in trading securities ...Net gains related to the disposition of acquired property and preforeclosure sales, including credit...

  • Page 221
    ...net of tax of $241) ...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 222
    ... 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 223
    ... a gain or loss upon modification of the senior preferred stock purchase agreement. Consistent with our accounting policy, dividends on the senior preferred stock are accrued upon declaration, which occurs each quarter when FHFA directs us to pay the quarterly dividend to Treasury. On December 31...

  • Page 224
    ... Mac's role in the market and ultimately wind down both institutions. The report emphasizes the importance of proceeding with a careful transition plan and providing the necessary financial support to Fannie Mae and Freddie Mac during the transition period. In August 2013, the White House released...

  • Page 225
    ...statements of operations and comprehensive income of $108 million, $109 million and $91 million for the years ended December 31, 2014, 2013 and 2012. In October 2013, Fannie Mae and Freddie Mac established Common Securitization Solutions, LLC ("CSS"), a jointly owned limited liability company formed...

  • Page 226
    ... have occurred between us and Freddie Mac during the years ended December 31, 2014, 2013 or 2012. Use of Estimates Preparing consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect our reported amounts of assets and liabilities, and...

  • Page 227
    ..."Investment gains (losses), net" in our consolidated statements of operations and comprehensive income. 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 228
    ... the loan collateral is subject 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...

  • Page 229
    ... financial statements both our investment in the trust and the mortgage loans of the Fannie Mae MBS trusts that we consolidate that underlie the multiclass resecuritization trust. Additionally, we recognize the unsecured corporate debt issued to third parties to fund the purchase of our investments...

  • Page 230
    ... statements of cash flows, we present cash flows from derivatives that do not contain financing elements and mortgage loans held for sale as operating activities. We present cash flows from federal funds sold and securities purchased under agreements to resell or similar arrangements as investing...

  • Page 231
    ... balance sheets. The unamortized obligation to stand ready to perform over the term of our guaranty and any incurred credit losses that relate to Fannie Mae MBS held as "Investments in securities" is included in "Other liabilities." Upon subsequent sale of a Fannie Mae MBS, we continue to account...

  • Page 232
    ... loans, we recognize interest income for loans on nonaccrual status when cash is received. For multifamily loans on nonaccrual status, we apply any payment received on a cost recovery basis to reduce principal on the mortgage loan. We return a single-family loan to accrual status at the point...

  • Page 233
    ... 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 234
    ... internal model that applies loss factors to loans in similar risk categories. 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...

  • Page 235
    ... advances with our lender customers. Early lender funding advances have terms up to 60 days and earn a short-term market rate of interest. We report cash outflows from advances to lenders as an investing activity in our consolidated statements of cash flows. Settlements of the advances to lenders...

  • Page 236
    ... assets recognized as loans are included as "Mortgage loans" in our consolidated balance sheets. Our liability to third party holders of Fannie Mae MBS that arises as the result of a consolidation of a securitization trust is collateralized by the underlying loans and/or mortgage-related securities...

  • Page 237
    ... the purchase price of the MBS does not equal the carrying value of the related consolidated MBS debt reported in our consolidated balance sheets (including unamortized premiums, discounts and other cost basis adjustments) at the time of purchase. Income Taxes We recognize deferred tax assets and...

  • Page 238
    ... and foreclosure timelines per our Servicing Guide, which sets forth our policies and procedures related to servicing our single-family mortgages. Compensatory fees are intended to compensate us for damages attributed to such servicing delays and to emphasize the importance of servicer performance...

  • Page 239
    ... or other financial assets, typically mortgage loans. The trusts act as vehicles to allow loan originators to securitize assets. Securities are structured from the underlying pool of assets to provide for varying degrees of risk. The originators of the financial assets or the underwriters of the...

  • Page 240
    ... partnership investments were $5.8 billion and $6.8 billion as of December 31, 2014 and 2013, respectively. Transfers of Financial Assets We issue Fannie Mae MBS through portfolio securitization transactions by transferring pools of mortgage loans or mortgagerelated securities to one or more trusts...

  • Page 241
    ... operations and comprehensive income. We report the recorded investment of HFI loans at the unpaid principal balance, net of unamortized premiums and discounts, other cost basis adjustments, and accrued interest receivable. For purposes of the single-family mortgage loan disclosures below, we define...

  • Page 242
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Aging Analysis The following tables display an aging analysis of the total recorded investment in our HFI mortgage loans by portfolio segment and class as of December 31, 2014 and 2013, excluding loans for ...

  • Page 243
    ... current value of the property, which we calculate using an internal valuation model that estimates periodic changes in home value. The following table displays the total recorded investment in our multifamily HFI loans by credit quality indicator as of December 31, 2014 and 2013, excluding loans...

  • Page 244
    ... Unpaid Principal Balance Total Recorded Investment Total Recorded Investment Individually impaired loans: With related allowance recorded: Single-family: Primary ...Government ...Alt-A ...Other ...Total single-family ...Multifamily ...Total individually impaired loans with related allowance...

  • Page 245
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the Year Ended December 31, 2014 Interest Income Recognized on a Cash Basis 2013 Interest Income Recognized on a Cash Basis 2012 Interest Income Recognized on a Cash Basis Average Recorded Investment ...

  • Page 246
    ...modifications that are one or more months delinquent during the period. For the Year Ended December 31, 2014 2013 Number of Loans Recorded Investment Number of Loans Recorded Investment (Dollars in millions) Single-family: Primary...Government ...Alt-A ...Other ...Total single-family...Multifamily...

  • Page 247
    ...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, 2014, 2013 and 2012. For the Year Ended December 31, 2014 Of Fannie Mae Of Consolidated Trusts Of Fannie Mae 2013 Of...

  • Page 248
    ...statements of operations and comprehensive income. The following table displays our investments in trading securities as of December 31, 2014 and 2013. As of December 31, 2014 2013 (Dollars in millions) Mortgage-related securities: Fannie Mae ...$ 4,940 $ 5,870 Freddie Mac ...1,369 1,839 Ginnie Mae...

  • Page 249
    ... statements of operations and comprehensive income. The following table displays the gross realized gains, losses and proceeds on sales of AFS securities, excluding proceeds from the initial sale of securities from new portfolio securitizations, for the years ended December 31, 2014, 2013 and 2012...

  • Page 250
    ... be required to sell the security before recovery. We recognized $90 million, $64 million and $713 million of OTTI for the years ended December 31, 2014, 2013 and 2012, respectively, which are included in "Investment gains (losses), net" in our consolidated statements of operations and comprehensive...

  • Page 251
    ... FINANCIAL STATEMENTS - (Continued) The following table displays the modeled attributes, including default rates and severities, which were used to determine as of December 31, 2014 whether our senior interests in certain non-agency mortgage-related securities (including those we intend to sell...

  • Page 252
    ... other cost basis adjustments) by amortized cost balances as of year-end. Yields on tax-exempt obligations have been computed on a tax equivalent basis. 6. Financial Guarantees We generate revenue by absorbing the credit risk of mortgage loans in unconsolidated trusts in exchange for a guaranty fee...

  • Page 253
    ... to sell the property and are actively marketing it for sale. The following table displays the activity in acquired property, and related valuation allowance, for the years ended December 31, 2014, 2013 and 2012. For the Year Ended December 31, 2014 2013 2012 (Dollars in millions) Beginning balance...

  • Page 254
    ... Interest Outstanding Rate(1) (Dollars in millions) Federal funds purchased and securities sold under agreements to repurchase(2) ...$ 50 -% $ - -% Fixed-rate short-term debt: Discount notes(3)...$ 105,012 Foreign exchange discount notes(4) ...- Total short-term debt of Fannie Mae...105...

  • Page 255
    ... swaps for the purpose of funding our mortgage assets. Our long-term debt also includes Connecticut Avenue Securities ("CAS"), which are credit risk sharing securities that transfer a portion of the credit risk on specified pools of mortgage loans to investors in these securities. See "Note 16...

  • Page 256
    ..., such as zero-coupon bonds, fixed rate and other long-term securities, and are generally negotiated underwritings with one or more dealers or dealer banks. Characteristics of Debt As of December 31, 2014 and 2013, the face amount of our debt securities of Fannie Mae was $464.6 billion and $534...

  • Page 257
    ... adjustment(2) ...- Total net risk management derivatives...$ 128,628 $ Mortgage commitment derivatives: Mortgage commitments to purchase whole loans ...$ Forward contracts to purchase mortgage-related securities ...Forward contracts to sell mortgagerelated securities ...Total mortgage commitment...

  • Page 258
    ... of operations and comprehensive income. 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, 2014, 2013 and 2012. For the Year Ended December 31, 2014 2013 (Dollars in millions) 2012 Risk management...

  • Page 259
    ... tax rates and the statutory federal tax rates for the years ended December 31, 2014, 2013 and 2012, respectively. For the Year Ended December 31, 2014 2013 2012 Statutory corporate tax rate...Equity investments in affordable housing projects...Other ...Valuation allowance ...Effective tax rate...

  • Page 260
    ... stock purchase agreement; and the carryforward periods for any carryforwards of net operating losses, if any, capital losses and tax credits. We recognized a benefit for federal income taxes of $58.3 billion in our consolidated statement of operations and comprehensive income for the year ended...

  • Page 261
    ... for our defined contribution plans, are included in "Salaries and employee benefits" in our consolidated statements of operations and comprehensive income. For the years ended December 31, 2014, 2013 and 2012, we recognized net periodic benefit costs for our defined benefit and healthcare plans and...

  • Page 262
    ... under the pension plans during 2015. The following table displays the changes in the pre-tax and after-tax amounts recognized in AOCI that have not been recognized as a component of net periodic benefit cost for the years ended December 31, 2014 and 2013. For the Year Ended 2014 2013 (Dollars in...

  • Page 263
    ... of plan assets in Level 2 are determined based on the net asset value per share of the investments as of year end. 13. Segment Reporting Our three reportable segments are: Single-Family, Multifamily, and Capital Markets. We use these three segments to generate revenue and manage business risk, and...

  • Page 264
    ... that of Single-Family. The primary sources of revenue for our Multifamily business are guaranty fees the segment receives as compensation for assuming the credit risk on the mortgage loans underlying multifamily Fannie Mae MBS, most of which are held within consolidated trusts, guaranty fees on the...

  • Page 265
    ... 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, 2014, 2013 and 2012...

  • Page 266
    ... STATEMENTS - (Continued) For the Year Ended December 31, 2013 Business Segments SingleFamily Multifamily Capital Markets Other Activity/Reconciling Items Consolidated Trusts(1) Eliminations/ Adjustments(2) Total Results (Dollars in millions) Net interest income (loss) ...$ 205 Benefit for credit...

  • Page 267
    ...FINANCIAL STATEMENTS - (Continued) For the Year Ended December 31, 2012 Business Segments SingleFamily Multifamily Capital Markets Other Activity/Reconciling Items Consolidated Trusts(1) Eliminations/ Adjustments(2) Total Results (Dollars in millions) Net interest (loss) income ...$ (790) Benefit...

  • Page 268
    ...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 in the United States and its territories, and...

  • Page 269
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Preferred Stock The following table displays our senior preferred stock and preferred stock outstanding as of December 31, 2014 and 2013. Issued and Outstanding as of December 31, 2014 Title Issue Date Shares ...

  • Page 270
    ... the stated conversion rate into common stock. Events which may trigger an adjustment to the conversion price include certain changes in our common stock dividend rate, subdivisions of our outstanding common stock into a greater number of shares, combinations of our outstanding common stock into...

  • Page 271
    ... Treasury pays to us pursuant to Treasury's funding commitment provided in the senior preferred stock purchase agreement and any quarterly commitment fee payable under the senior preferred stock purchase agreement that is not paid in cash to or waived by Treasury will be added to the liquidation...

  • Page 272
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Following the termination of Treasury's funding commitment, we may pay down the liquidation preference of all outstanding shares of senior preferred stock at any time, in whole or in part. Common Stock Warrant ...

  • Page 273
    ... of our business segments. Each plan must include an assessment of our performance against the planned actions described in the prior year's plan. We submitted our annual risk management plan to Treasury in December 2014. Termination Provisions The senior preferred stock purchase agreement provides...

  • Page 274
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) agreement. In addition, Treasury may terminate its funding commitment and declare the senior preferred stock purchase agreement null and void if a court vacates, modifies, amends, conditions, enjoins, stays or ...

  • Page 275
    ... 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 276
    ... single-family conventional guaranty book of business as of December 31, 2014 and 2013. Except for California, where approximately 20% of the gross unpaid principal balance of our single-family conventional mortgage loans held or securitized in Fannie Mae MBS as of December 31, 2014 and 2013, were...

  • Page 277
    ..., counterparty risk, property performance and contract compliance. We 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 credit quality of...

  • Page 278
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For single-family and multifamily loans, we use this information, in conjunction with housing market and economic conditions, to structure our pricing and our eligibility and underwriting criteria to reflect ...

  • Page 279
    ... mortgage credit book of business as of December 31, 2013. Other Concentrations Mortgage Sellers and Servicers. Mortgage servicers collect mortgage and escrow payments from borrowers, pay taxes and insurance costs from escrow accounts, monitor and report delinquencies, and perform other required...

  • Page 280
    ... in paying claims under insurance policies, and could also cause the quality and speed of its claims processing to deteriorate. These three mortgage insurers provided a combined $12.3 billion, or 11%, of our risk in force mortgage insurance coverage of our single-family guaranty book of business as...

  • Page 281
    ... pay the contractual mortgage insurance claims. We had outstanding receivables of $1.4 billion recorded in "Other assets" in our consolidated balance sheets as of December 31, 2014 and $2.1 billion as of December 31, 2013 related to amounts claimed on insured, defaulted loans excluding government...

  • Page 282
    ..., 2014, transferring some of the credit risk associated with losses on the underlying mortgage loans to investors in these securities. In a CAS transaction, we create a reference pool consisting of recently acquired single-family mortgage loans included in our single-family guaranty book of business...

  • Page 283
    ... certain financial instruments and collateral with the same counterparty, to minimize counterparty credit exposure. The table below displays information related to derivatives, securities purchased under agreements to resell or similar arrangements, and securities sold under agreements to repurchase...

  • Page 284
    ... clearing member are closed and a net position is calculated. 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 lenders, or Master Securities Forward Transaction Agreements ("MSFTA...

  • Page 285
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) We also have securities purchased under agreements to resell which we transact through the Fixed Income Clearing Corporation ("FICC"). Under the rules of the FICC, all agreements for securities purchased under ...

  • Page 286
    ... securities: Mortgage-related securities: Fannie Mae ...Freddie Mac ...Ginnie Mae ...Alt-A private-label securities ...Subprime private-label securities ...CMBS ...Mortgage revenue bonds ...Other ...Total available-for-sale securities ...Mortgage loans of consolidated trusts ...Other assets: Risk...

  • Page 287
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Quoted Prices in Active Markets for Identical Assets (Level 1) Fair Value Measurements as of December 31, 2014 Significant Significant Other Unobservable Observable Inputs Netting Inputs (Level 3) Adjustment...

  • Page 288
    ...-sale securities: Mortgage-related securities: Fannie Mae ...Freddie Mac...Ginnie Mae ...Alt-A private-label securities...Subprime private-label securities ...CMBS ...Mortgage revenue bonds ...Other ...Total available-for-sale securities ...Mortgage loans of consolidated trusts ...Other assets: Risk...

  • Page 289
    ... Markets for Identical Assets (Level 1) Fair Value Measurements as of December 31, 2013 Significant Significant Other Observable Unobservable Inputs Netting Inputs (Level 3) Adjustment(1) (Level 2) (Dollars in millions) Estimated Fair Value Liabilities: Long-term debt: Of Fannie Mae: Senior fixed...

  • Page 290
    ... in Net Income Included in Other Comprehensive Income(1) Purchases(2) Sales(2) Issues(3) Settlements(3) Transfers out of Level 3(4) Transfers into Level 3(4) Balance, December 31, 2014 (Dollars in millions) Trading securities: Mortgage-related: Fannie Mae ...Freddie Mac ...Alt-A private...

  • Page 291
    ...Included in Other Comprehensive Income(1) Purchases(2) Sales(2) Issues(3) Settlements(3) Transfers out of Level 3(4) Transfers into Level 3(4) Balance, December 31, 2013 (Dollars in millions) Trading securities: Mortgage-related: Fannie Mae ...Freddie Mac ...Ginnie Mae ...Alt-A private-label...

  • Page 292
    ... 31, 2011 Included in Net Income Included in Other Comprehensive Income(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 ...Freddie Mac...

  • Page 293
    ...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 ...Multifamily ...Other assets...

  • Page 294
    ...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 ...Multifamily ...Other assets...

  • Page 295
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table displays valuation techniques and the range and the weighted average of significant unobservable inputs for our Level 3 assets and liabilities measured at fair value on a recurring basis as ...

  • Page 296
    ... TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Fair Value Fair Value Measurements as of December 31, 2014 Significant Valuation Significant Techniques Unobservable Inputs(1) Range(1) (Dollars in millions) Weighted Average(1) Available-for-sale securities: Mortgage-related securities: Agency...

  • Page 297
    ...Total single-family ...1,654 Multifamily ...179 Total mortgage loans of consolidated trusts . $ 1,833 Net derivatives ...$ (107) 150 2 Total net derivatives ...$ 45 Long-term debt: Of Fannie Mae: Senior floating...$ (363) Of consolidated trusts(2) ...(219) (205) Other Build-Up Internal Model Dealer...

  • Page 298
    ... FINANCIAL STATEMENTS - (Continued) Fair Value Fair Value Measurements as of December 31, 2013 Significant Valuation Significant Techniques Unobservable Inputs(1) Range(1) (Dollars in millions) Weighted Average(1) Recurring fair value measurements: Trading securities: Mortgage-related securities...

  • Page 299
    ... TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Fair Value Fair Value Measurements as of December 31, 2013 Significant Valuation Significant Techniques Unobservable Inputs(1) Range(1) (Dollars in millions) Weighted Average(1) Available-for-sale securities: Mortgage-related securities: Agency...

  • Page 300
    ... 310 Discounted Cash Flow 60 Total single-family ...2,529 Multifamily ...175 Total mortgage loans of consolidated trusts. $ 2,704 Net derivatives ...$ (64) 32 (8) Total net derivatives...$ (40) Long-term debt: Of Fannie Mae: Senior floating ...$ (266) (689) Other Build-Up Internal Model Dealer...

  • Page 301
    ...1,533 Broker Price Opinions Asset Manager Estimate Other Total multifamily mortgage loans held for investment, at amortized cost...Acquired property, net: Single-family...Accepted Offers Appraisals Walk Forwards Internal Model Other Total single-family ...Multifamily ...Broker Price Opinions Other...

  • Page 302
    ...a state-level distressed property sales discount. Cash flow characteristics include attributes such as the weighted average coupon rate and loan payment history. The fair value of mortgage insurance is estimated by taking the loan level coverage and adjusting it by the expected claims paying ability...

  • Page 303
    ...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 values to estimate property fair value. These loans are classified as Level 3 of the valuation hierarchy because significant inputs...

  • Page 304
    ... broker price opinion. These valuations are kept current using a monthly walk forward process that updates them for any change in the value of the property. When accepted offers or third-party valuations are not available, we generally utilize the home price values determined using an internal model...

  • Page 305
    ... of debt of Fannie Mae and our debt of consolidated trusts using a single vendor price that represents estimated fair value for these liabilities when traded as assets. Discounted Cash Flow: In the absence of prices provided by third-party pricing services supported by observable market data, we...

  • Page 306
    ... is responsible for establishing risk management controls and for reviewing models used in the determination of fair value measurements for financial reporting. In addition, our Quality Control Group reviews the overall work performed and inspects a portion of the properties in major markets, for...

  • Page 307
    ...cash...$ Federal funds sold and securities purchased under agreements to resell or 30,950 similar arrangements ...Trading securities...31,504 Available-for-sale securities...30,654 Mortgage loans held for sale ...331 Mortgage loans held for investment, net of allowance for loan losses: Of Fannie Mae...

  • Page 308
    ...Financial assets: Cash and cash equivalents and restricted cash ...$ 48,223 Federal funds sold and securities purchased under agreements to resell or similar 38,975 arrangements ...Trading securities ...30,768 Available-for-sale securities ...38,171 Mortgage loans held for sale...380 Mortgage loans...

  • Page 309
    ... for Fannie Mae MBS securitization and are valued using market-based techniques including credit spreads, severities and prepayment speeds for similar loans, through third-party pricing services or through a model approach incorporating both interest rate and credit risk simulating a loan sale via...

  • Page 310
    ...of operations and comprehensive income. 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, 2014 and 2013. As of December 31, 2014 Loans of Consolidated Trusts(1) Long-Term Debt of Fannie...

  • Page 311
    ...income for the years ended December 31, 2014, 2013 and 2012. For the Year Ended December 31, 2013 Total Gains Loans LongTerm Debt Total (Losses) Loans 2014 Loans LongTerm Debt 2012 LongTerm Debt Total (Losses) (Dollars in millions) Changes in instrument-specific credit risk ...$ 60 Other changes...

  • Page 312
    ... plaintiffs' Securities Exchange Act claims premised on Fannie Mae's subprime and Alt-A disclosures to proceed along with plaintiffs' claims premised on Fannie Mae's risk management disclosures. Fannie Mae filed its answer to the second amended complaint on October 29, 2012. On July 15, 2014, the...

  • Page 313
    ...'s Securities Exchange Act claims premised on Fannie Mae's subprime and Alt-A disclosures and risk management disclosures to proceed, but granted defendants' motions to dismiss the state law claims. Fannie Mae filed its answer to the second amended complaint on October 29, 2012. On December 9, 2014...

  • Page 314
    ... stock purchase agreements nullified certain of the shareholders' rights, particularly the right to receive dividends. The common shareholder plaintiffs allege that the August 2012 amendments constituted a taking of their property by requiring that all future profits of Fannie Mae and Freddie Mac...

  • Page 315
    ... 2014 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...Total interest expense ...Net interest income ...Benefit for credit losses ...Net interest income...

  • Page 316
    FANNIE MAE (In conservatorship) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the 2013 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 317
    FR021