Fannie Mae 2010 Annual Report Download - page 71

over us in its role as our conservator. We are also subject to other laws and regulations that affect our
business, including those regarding taxation and privacy.
The Charter Act defines our permissible business activities. For example, we may not originate mortgage loans
or purchase single-family loans in excess of the conforming loan limits, and our business is limited to the
U.S. housing finance sector. In addition, our conservator has determined that, while in conservatorship, we will
not be permitted to engage in new products and will be limited to continuing our existing business activities
and taking actions necessary to advance the goals of the conservatorship. As a result of these limitations on
our ability to diversify our operations, our financial condition and earnings depend almost entirely on
conditions in a single sector of the U.S. economy, specifically, the U.S. housing market. The weak and
unstable condition of the U.S. housing market over the past approximately three to four years has therefore
had a significant adverse effect on our results of operations, financial condition and net worth, which is likely
to continue.
We could be required to pay substantial judgments, settlements or other penalties as a result of pending
government investigations and civil litigation.
We are subject to investigations by the Department of Justice and the SEC, and are a party to a number of
lawsuits. We are unable at this time to estimate our potential liability in these matters, but may be required to
pay substantial judgments, settlements or other penalties and incur significant expenses in connection with
these investigations and lawsuits, which could have a material adverse effect on our business, results of
operations, financial condition, liquidity and net worth. In addition, responding to requests for information in
these investigations and lawsuits may divert significant internal resources away from managing our business.
More information regarding these investigations and lawsuits is included in “Legal Proceedings” and
“Note 20, Commitments and Contingencies.”
Our common and preferred stock have been delisted from the NYSE and the Chicago Stock Exchange,
which could adversely affect the market price and liquidity of our delisted securities.
Our common stock and previously-listed series of our preferred stock were delisted from the New York Stock
Exchange and the Chicago Stock Exchange on July 8, 2010 and are now traded exclusively in the
over-the-counter market. The market price of our common stock has declined significantly since June 16,
2010, the date we announced our intention to delist these securities, and may decline further.
There can be no assurance that an active trading market in our equity securities will continue to exist. Our
quoted securities are likely to experience price and volume fluctuations which may be more significant than
when our securities were listed on a national securities exchange, which could adversely affect the market
price of these securities. We cannot predict the actions of market makers, investors or other market
participants, and can offer no assurances that the market for our securities will be stable.
Mortgage fraud could result in significant financial losses and harm to our reputation.
We use a process of delegated underwriting in which lenders make specific representations and warranties
about the characteristics of the single-family mortgage loans we purchase and securitize. As a result, we do
not independently verify most borrower information that is provided to us. This exposes us to the risk that one
or more of the parties involved in a transaction (the borrower, seller, broker, appraiser, title agent, lender or
servicer) will engage in fraud by misrepresenting facts about a mortgage loan. We have experienced financial
losses resulting from mortgage fraud, including institutional fraud perpetrated by counterparties. In the future,
we may experience additional financial losses or reputational damage as a result of mortgage fraud.
RISKS RELATING TO OUR INDUSTRY
A further decline in U.S. home prices or activity in the U.S. housing market would likely cause higher
credit losses and credit-related expenses, and lower business volumes.
We expect weakness in the real estate financial markets to continue in 2011. The deterioration in the credit
condition of outstanding mortgages will result in the foreclosure of some troubled loans, which is likely to add
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