This Loan Loss Reserve (ALLL) had a beginning balance as of end of 2020 of $16.8 billion + the $42 billion provision for loan losses - the $20 credit loss, the outcome is an ending balance at the end of the "nine-quarter planning horizon" (1Q2023) of $31 billion, to cover future losses.
Later, as you say, it can be released and it shows up as profit on the Income Statement (Benefit for loan losses)
This is controversial, because CECL accounting requires an estimation of future losses, but also some certainty and the loans be individually assessed. But I've seen the former CFO of fannie mae, considering it a general estimation of losses in the portfolio, which is wrong. Anyway, she was fired.
So, theoretically, the estimation of losses is certain, although it's not clear whether the CFOs of all the financial companies are following the rule.
We saw the release of this reserve with FnF: massive provisions set aside during 2008-2011 and as of 2012, every year there was release of the reserve, but in 2020. This is the benefit for loan losses posted by fannie mae. 2012-2021 to date. Annual data, $ in billion 1/9/4/1/2/2/3/4/-0.7/3.3.
Notice that CECL began in 2020.
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