Fannie Mae 2004 Annual Report Download - page 51

subsequent to 2007. 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. Our substantial reliance on conditions in the U.S. housing market may
adversely affect the investment returns we are able to generate. In addition, the Secretary of HUD must
approve any new Fannie Mae conventional mortgage program that is significantly different from those
approved or engaged in prior to the enactment of the 1992 Act. As a result, we have only limited ability to
respond quickly to changes in market conditions by offering new programs in response to these changes.
These restrictions on our business operations may negatively affect our ability to compete successfully with
other companies in the mortgage industry from time to time, which in turn may adversely affect our market
share, our earnings and our financial condition. As described below under “To meet HUD’s new housing goals
and subgoals, we enter into transactions that may reduce our profitability,” we are also subject to housing
goals established by HUD, which require that a specified portion of our business relate to the purchase or
securitization of mortgages for low- and moderate-income housing, underserved areas and special affordable
housing. Meeting these goals may adversely affect our profitability.
Legislative Proposals. Legislative proposals currently being considered by the U.S. Congress, if enacted into
law, could materially restrict our operations and adversely affect our business and our earnings. During 2005,
several bills were introduced in Congress that propose to change the regulatory framework under which we,
Freddie Mac and the Federal Home Loan Banks operate. The Senate Committee on Banking, Housing and
Urban Affairs and the U.S. House of Representatives each advanced GSE regulatory oversight legislation in
2005 during the first session of the 109th Congress. On October 26, 2005, the House of Representatives passed
a bill and on July 28, 2005, the Senate Committee on Banking, Housing and Urban Affairs passed a bill,
which has not yet been brought to the floor of the Senate for a vote. While the House and Senate bills differ
in a number of respects, both bills would affect us and other GSEs by significantly altering the scope of:
• our authorized and permissible activities;
• the potential level of our required capital;
• the size and composition of our mortgage investment portfolio (a potential limitation in the House bill and
a specific limitation in the Senate bill);
• the levels of affordable housing goals; and
• the process by which any new activities and programs would be approved and the extent of regulatory
oversight.
In addition, the House bill would require Fannie Mae and Freddie Mac to contribute a portion of their profits
to a fund to support affordable housing.
This legislation could materially adversely affect our business and earnings. We cannot predict the prospects
for the enactment, timing or content of any legislation, the form any enacted legislation will take or its impact
on our financial condition or results of operations.
Changes in Existing Regulations or Regulatory Practices. Our business and earnings could also be materially
affected by changes in the regulation of our business made by any one or more of our existing regulators. A
regulator may change its current process for regulating our business, change its current interpretations of our
regulatory requirements or exercise regulatory authority over our business beyond current practices, and any of
these changes could have a material adverse effect on our business and earnings. For example, on June 13,
2006, HUD announced that it will conduct a review of specified investments and holdings to determine
whether our investment activities are consistent with our charter authority. We cannot predict the outcome of
this review or whether HUD will seek to restrict our current business activities as a result of this or other
reviews.
To meet HUD’s new housing goals and subgoals, we enter into transactions that may reduce our
profitability.
As part of our mission of increasing the availability and affordability of financing for residential mortgage
loans in the United States, we must comply with the housing goals and subgoals established by HUD. HUD’s
housing goals require that a specified portion of our business relate to the purchase or securitization of
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