Fannie Mae 2010 Annual Report Download - page 176

We have exposure primarily to the following types of institutional counterparties:
• mortgage seller/servicers that service the loans we hold in our investment portfolio or that back our
Fannie Mae MBS;
• third-party providers of credit enhancement on the mortgage assets that we hold in our investment
portfolio or that back our Fannie Mae MBS, including mortgage insurers, financial guarantors and lenders
with risk sharing arrangements;
• custodial depository institutions that hold principal and interest payments for Fannie Mae portfolio loans
and MBS certificateholders, as well as collateral posted by derivatives counterparties, repurchase
transaction counterparties and mortgage originators or servicers;
• issuers of securities held in our cash and other investments portfolio;
• derivatives counterparties;
• mortgage originators and investors;
• debt security and mortgage dealers; and
• document custodians.
We routinely enter into a high volume of transactions with counterparties in the financial services industry,
including brokers and dealers, mortgage lenders and commercial banks, and mortgage insurers, resulting in a
significant credit concentration with respect to this industry. We also have significant concentrations of credit
risk with particular counterparties. Many of our institutional counterparties provide several types of services
for us. For example, many of our lender customers or their affiliates act as mortgage seller/servicers,
derivatives counterparties, custodial depository institutions and document custodians on our behalf.
Unfavorable market conditions have adversely affected, and continue to adversely affect, the liquidity and
financial condition of many of our institutional counterparties, which has significantly increased the risk to our
business of defaults by these counterparties due to bankruptcy or receivership, lack of liquidity, insufficient
capital, operational failure or other reasons. Although we believe that government actions to provide liquidity
and other support to specified financial market participants has initially helped and may continue to help
improve the financial condition and liquidity position of a number of our institutional counterparties, there can
be no assurance that these actions will continue to be effective or will be sufficient. As described in “Risk
Factors,” the financial difficulties that our institutional counterparties are experiencing may negatively affect
their ability to meet their obligations to us and the amount or quality of the products or services they provide
to us.
In the event of a bankruptcy or receivership of one of our counterparties, we may be required to establish our
ownership rights to the assets these counterparties hold on our behalf to the satisfaction of the bankruptcy
court or receiver, which could result in a delay in accessing these assets causing a decline in their value. In
addition, if we are unable to replace a defaulting counterparty that performs services that are critical to our
business with another counterparty, it could materially adversely affect our ability to conduct our operations.
On September 22, 2009, we filed a proof of claim as a creditor in the bankruptcy case of Lehman Brothers
Holdings, Inc., which filed for bankruptcy in September 2008. The claim of $8.9 billion included losses we
incurred in connection with the termination of our outstanding derivatives contracts with a subsidiary of
Lehman Brothers, federal securities law claims related to Lehman Brothers private-label securities and notes
held in our cash and other investments portfolio, losses arising under certain REMIC and grantor trust
transactions, and mortgage loan repurchase obligations. A contingent claim of $6.9 billion was also included,
primarily relating to a large multifamily transaction. However, based on Lehman Brothers’ financial condition,
we believe we will receive only a portion of these claims.
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