Fannie Mae 2014 Annual Report Download - page 86

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(Benefit) Provision for Credit Losses
Our total loss reserves provide for an estimate of credit losses incurred in our guaranty book of business, including
concessions we granted borrowers upon modification of their loans. We establish our loss reserves through our provision for
credit losses for losses that we believe have been incurred and will eventually be realized over time in our financial
statements. When we reduce our loss reserves, we recognize a benefit for credit losses. When we determine that a loan is
uncollectible, typically upon foreclosure, we recognize a charge-off against our loss reserves. We record recoveries of
previously charged-off amounts as a reduction to charge-offs.
Table 11 displays the components of our total loss reserves and our total fair value losses previously recognized on loans
purchased out of unconsolidated MBS trusts reflected in our consolidated balance sheets. Because these fair value losses
lowered our recorded loan balances, we have fewer inherent losses in our guaranty book of business and consequently require
lower total loss reserves. For these reasons, we consider these fair value losses as an “effective reserve,” apart from our total
loss reserves, to the extent that we expect to realize these amounts as credit losses on the acquired loans in the future. The fair
value losses shown in Table 11 represent credit losses we expect to realize in the future or amounts that will eventually be
recovered, either through net interest income for loans that cure or 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
(Dollars in millions)
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,541 $43,846
Reserve for guaranty losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,246 1,449
Combined loss reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,787 45,295
Allowance for accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723 1,156
Allowance for preforeclosure property taxes and insurance receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 663 839
Total loss reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,173 47,290
Fair value losses previously recognized on acquired credit-impaired loans(1) . . . . . . . . . . . . . . . . . . . . . . . 9,864 11,316
Total loss reserves and fair value losses previously recognized on acquired credit-impaired loans . . . . $48,037 $58,606
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(1) Represents the fair value losses on loans purchased out of unconsolidated MBS trusts reflected in our consolidated balance sheets.