Fannie Mae 2004 Annual Report Download - page 180

Liquidity Contingency Plan
Our Liquidity Risk Policy includes a contingency plan in the event that factors, whether internal or external to
our business, temporarily compromise our ability to access capital through normal channels. Our contingency
plan provides for alternative sources of liquidity that would allow us to meet all of our cash obligations for
90 days without relying upon the issuance of unsecured debt. If our access to the capital markets becomes
impaired, our contingency plan designates our unencumbered mortgage portfolio as our primary source of
liquidity. Our unencumbered mortgage portfolio consists of unencumbered mortgage loans and mortgage-
related securities that could be pledged as collateral for borrowing in the market for mortgage repurchase
agreements or sold to generate additional funds. As of December 31, 2004 and 2003, substantially all of our
mortgage portfolio would have been eligible to be pledged as collateral under repurchase agreements. As of
December 31, 2004 and 2003, $1.7 billion and $5.1 billion, respectively, of the mortgage-related securities
held in our portfolio had been pledged as collateral under repurchase agreements.
Our liquid investment portfolio is also a source of liquidity in the event that we cannot access the capital
markets. Our liquid investment portfolio consists primarily of high-quality non-mortgage investments that are
readily marketable or have short-term maturities. As of December 31, 2004 and 2003, we had approximately
$55.1 billion and $67.1 billion, respectively, in liquid assets, net of any cash and cash equivalents pledged as
collateral. Our investments in non-mortgage securities, which account for the majority of our liquid assets,
totaled $43.9 billion and $46.8 billion as of December 31, 2004 and 2003, respectively. Approximately 93%
and 88% of our non-mortgage securities as of December 31, 2004 and 2003, respectively, had a credit rating
of A (or its equivalent) or higher, based on the lowest of Standard & Poor’s, Moody’s or Fitch ratings.
OFHEO Supervision
Pursuant to its role as our safety and soundness regulator, OFHEO monitors our liquidity management
practices and audits our liquidity position on a continuous basis. On September 1, 2005, we entered into an
agreement with OFHEO that formalized and updated the voluntary initiatives that we announced in October
2000 to enhance market discipline, liquidity and capital. Pursuant to this agreement, we agreed to certain
commitments pertaining to management of our liquidity, including:
• complying with principles of sound liquidity management consistent with industry practice;
• maintenance of a portfolio of highly liquid assets;
• maintenance of a functional contingency plan providing for at least three months’ liquidity without relying
upon the issuance of unsecured debt; and
• periodic testing of our contingency plan in consultation with an OFHEO examiner.
Each of these commitments is addressed in our Liquidity Risk Policy described above. We further agreed to
periodic public disclosure regarding our compliance with the plan for maintaining three months’ liquidity and
meeting the commitment for periodic testing. We believe we were in compliance with our commitment to
maintain and test our functional contingency plan as of September 30, 2006. We expect that OFHEO will
finalize its review of our implementation of these commitments once revised policies have been completed in
early 2007.
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