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SEC Filings

10-Q
FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE filed this Form 10-Q on 11/02/2018
Entire Document
 
 
MD&A | Consolidated Results of Operations


Credit-Related Income (Expense)
Benefit (Provision) for Credit Losses
The table below provides quantitative analysis of the drivers of our single-family benefit or provision for credit losses for the periods presented. Many of the drivers that contribute to our benefit or provision for credit losses overlap or are interdependent. The attribution shown below is based on internal allocation estimates. The table does not display our multifamily benefit or provision for credit losses as the amounts for all periods presented were less than $50 million.
Components of Benefit (Provision) for Credit Losses
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(Dollars in billions)
Single-family benefit (provision) for credit losses:
 
 
 
 
 
 
 
Changes in loan activity(1)
$
0.4

 
$
(0.9
)
 
$
0.7

 
$
(0.8
)
Redesignation of held for investment (“HFI”) loans to held for sale (“HFS”) loans
0.4

 
0.5

 
1.4

 
1.0

Actual and forecasted home prices
0.2

 
0.1

 
0.9

 
1.3

Actual and projected interest rates
(0.3
)
 
(0.1
)
 
(1.0
)
 
(0.2
)
Other(2)
*

 
0.2

 
0.2

 
0.2

Single-family benefit (provision) for credit losses
0.7

 
(0.2
)
 
2.2

 
1.5

Total benefit (provision) for credit losses
$
0.7

 
$
(0.2
)
 
$
2.2

 
$
1.5

_________
*
Represents less than $50 million.
(1) 
Primarily consists of changes in the allowance due to loan delinquency, loan liquidations, new troubled debt restructurings, amortization of concessions granted to borrowers and the impact of FHFA’s Advisory Bulletin 2012-02, “Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention” (the “Advisory Bulletin”). The 2017 amounts include our estimate as of September 30, 2017 of incurred losses resulting from Hurricanes Harvey, Irma and Maria (the “2017 hurricanes”), which is revised quarterly.
(2) 
Primarily consists of the impact of model and assumption changes that are not separately included in the other components.
The primary factors that impacted our benefit for credit losses in the third quarter and first nine months of 2018 were:
The redesignation of certain reperforming and nonperforming single-family loans from HFI to HFS as we no longer intend to hold them for the foreseeable future or to maturity. Upon redesignation of these loans, we recorded the loans at the lower of cost or fair value with a charge-off to the allowance for loan losses. Amounts recorded in the allowance related to the loans exceeded the amounts charged off, which contributed to the benefit for credit losses.
An increase in actual home prices, which contributed to the benefit for credit losses. Higher home prices decrease the likelihood that loans will default and reduce the amount of credit loss on loans that do default, which impacts our estimate of losses and ultimately reduces our loss reserves and provision for credit losses.
The benefit for credit losses was partially offset by the impact of higher actual and projected mortgage interest rates. As mortgage interest rates rise, we expect a decrease in future prepayments on single-family individually impaired loans, including modified loans. Lower expected prepayments lengthen the expected lives of modified loans, which increases the impairment relating to term and interest rate concessions provided on these loans and results in an increase in the provision for credit losses.

Fannie Mae Third Quarter 2018 Form 10-Q
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