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Affordable Housing Allocations
The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the 2008 Reform Act, (together, the “GSE Act”) requires us and Freddie Mac 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 Fund and Treasury’s Capital Magnet Fund. New business purchases consist of single-family and multifamily whole mortgage loans purchased during the period and single-family and multifamily mortgage loans underlying Fannie Mae MBS issued during the period pursuant to lender swaps. These allocations were temporarily suspended by FHFA in November 2008, but in December 2014 FHFA ended the temporary suspension effective for 2015. As a result, we are required to set aside amounts during each year and to allocate or otherwise transfer these amounts within 60 days after the end of the year, unless we have made a draw from Treasury under the terms of the senior preferred stock purchase agreement based on a net worth deficit for any quarter of the year, or unless such allocation or transfer would cause us to have to make a draw from Treasury, in which case we will make no allocation or transfer for that year and the amounts accrued for that year will be reversed. In December 2014 FHFA issued an interim final rule prohibiting Fannie Mae and Freddie Mac from passing through the cost of these allocations to the originators of mortgage loans that we purchase or securitize, and in March 2015 FHFA issued a final rule continuing this rule. In the first quarter of 2015, our new business purchases totaled $124.0 billion, which resulted in our recording $52 million as an expense in our condensed consolidated statements of operations and comprehensive income. We expect to allocate these funds, plus additional amounts to be accrued based on our new business purchases in subsequent quarters of 2015, in February 2016. See “Business—Our Charter and Regulation of Our Activities—The GSE Act—Affordable Housing Allocations” in our 2014 Form 10-K for more information regarding these allocations.
2014 Housing Goals Performance
We are subject to housing goals, which establish specified requirements for our mortgage acquisitions relating to affordability or location. Our single-family performance is measured against the lower of benchmarks established by FHFA or goals-qualifying originations in the primary mortgage market. Multifamily goals are established as a number of units to be financed.
For 2014, we believe we met all of our single-family benchmarks with the exception of the very low-income families home purchase goal. We believe we also met both of our 2014 multifamily goals. Final performance results will be calculated and published by FHFA after the release in the fall of 2015 of data reported by primary market originators under the Home Mortgage Disclosure Act (“HMDA”). To determine whether we met our very low-income families home purchase goal, FHFA will compare our performance with that of the market. We will be in compliance with the single-family very low-income families home purchase goal if we meet the market share measure. See “Business—Our Charter and Regulation of Our Activities—The GSE Act—Housing Goals and Duty to Serve Undeserved Markets—Housing Goals for 2012 to 2014” in our 2014 Form 10-K for a more detailed discussion of our housing goals.
Dodd-Frank Act—FHFA Rule Regarding Stress Testing
Pursuant to an FHFA rule issued in 2013 implementing a provision of the Dodd-Frank Act, we are required to conduct an annual stress test, based on our data as of September 30, using three different scenarios of financial conditions provided by FHFA: baseline, adverse and severely adverse. As required by the rule, we published our most recent stress test results for the severely adverse scenario on our Web site on April 30, 2015.
The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in the condensed consolidated financial statements. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We describe our most significant accounting policies in “Note 1, Summary of Significant Accounting Policies” in this report and in our 2014 Form 10-K.
We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions. Management has discussed any significant changes in judgments and assumptions in applying our critical accounting policies with the Audit Committee of our Board of Directors. See “Risk Factors” in our 2014 Form 10-K for a discussion of the risks associated with the need for management to make judgments and estimates in applying our accounting policies and methods. We have identified three of our accounting policies as critical because they involve significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of