Fannie Mae 2006 Annual Report Download - page 41

• prevailing conditions in the capital markets;
• foreign exchange rates;
• interest rate fluctuations;
• competition from other issuers of AAA-rated agency debt;
• general economic conditions in the U.S. and abroad; and
• broader trade and political considerations among the U.S. and other countries.
Approximately 49.1% of the Benchmark Notes we issued in 2006 were purchased by non-U.S. investors,
including both private institutions and non-U.S. governments and government agencies. Accordingly, a
significant reduction in the purchase of our debt securities by non-U.S. investors could have a material adverse
effect on both the amount of debt securities we are able to issue and the price we are able to obtain for these
securities. Many of the factors that affect the amount of our securities that foreign investors purchase,
including economic downturns in the countries where these investors are located, currency exchange rates and
changes in domestic or foreign fiscal or monetary policies, are outside our control.
If we are unable to issue debt securities at attractive rates in amounts sufficient to operate our business and
meet our obligations, it would have a material adverse effect on our liquidity, financial condition and results of
operations.
On June 13, 2006, the U.S. Department of the Treasury announced that it would undertake a review of its
process for approving our issuances of debt, which could adversely impact our flexibility in issuing debt
securities in the future, including our ability to issue securities that are responsive to the marketplace. We
cannot predict whether the outcome of this review will materially impact our current business activities.
Our business is subject to laws and regulations that restrict our operations, that limit the amount of our net
mortgage portfolio assets and that restrict our ability to compete optimally, any of which may adversely
affect our profitability.
As a federally chartered corporation, we are subject to the limitations imposed by the Charter Act, extensive
regulation, supervision and examination by OFHEO and HUD, and regulation by other federal agencies, such
as the U.S. Department of the Treasury and the SEC. We are also subject to many laws and regulations that
affect our business, including those regarding taxation and privacy. In addition, the policy, approach or
regulatory philosophy of these agencies can materially affect our business.
Regulation by OFHEO could adversely affect our results of operations and financial condition. OFHEO has
broad authority to regulate our operations and management in order to ensure our financial safety and
soundness. For example, to meet our capital plan requirements in 2005, we made significant changes to our
business in 2005, including reducing the size of our mortgage portfolio by approximately 20% and reducing
our quarterly common stock dividend by 50%. Pursuant to our May 2006 consent order with OFHEO, we may
not increase our net mortgage portfolio assets above the amount shown in our minimum capital report as of
December 31, 2005 ($727.75 billion), except in limited circumstances at OFHEO’s discretion. As of August 10,
2007, OFHEO has advised us that we should continue to comply with the $727.75 billion limit on our net
mortgage portfolio assets. We anticipate that this limit on the size of our mortgage portfolio may restrict the
growth of our net income or may cause it to decrease. This limitation on the size of our portfolio currently
prevents us from purchasing assets that we would purchase if we were not subject to this limitation. In
addition, to comply with our remediation obligations, we have incurred significant administrative expenses.
Together, these changes contributed to a reduction in our earnings for the year ended December 31, 2006, as
compared to the year ended December 31, 2005. We expect the limitation on the size of our mortgage
portfolio will have, and the amount of our administrative expenses will continue to have, a negative impact on
our earnings in 2007. Similarly, any new or additional regulations that OFHEO may adopt in the future could
adversely affect our future earnings and financial condition.
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