Fannie Mae 2005 Annual Report Download - page 300

(2)
The sum of (a) the stated value of our outstanding common stock (common stock less treasury stock); (b) the stated
value of our outstanding non-cumulative perpetual preferred stock; (c) our paid-in capital; and (d) our retained earn-
ings. Core capital excludes AOCI.
(3)
Generally, the sum of (a) 2.50% of on-balance sheet assets; (b) 0.45% of the unpaid principal balance of outstanding
Fannie Mae MBS held by third parties; and (c) up to 0.45% of other off-balance sheet obligations, which may be
adjusted by the Director of OFHEO under certain circumstances (See 12 CFR 1750.4 for existing adjustments made by
the Director of OFHEO).
(4)
Defined as the surplus of core capital over required minimum capital expressed as a percentage of required minimum
capital.
(5)
The sum of (a) core capital and (b) the total allowance for loan losses and reserve for guaranty losses, less (c) the spe-
cific loss allowance (that is, the allowance required on individually-impaired loans). The specific loss allowance totaled
$66 million and $63 million as of December 31, 2005 and 2004, respectively.
(6)
Defined as the amount of total capital required to be held to absorb projected losses flowing from future adverse inter-
est rate and credit risk conditions specified by statute (see 12 CFR 1750.13 for conditions), plus 30% mandated by stat-
ute to cover management and operations risk.
(7)
Defined as the surplus of total capital over required risk-based capital expressed as a percentage of risk-based capital.
(8)
Generally, the sum of (a) 1.25% of on-balance sheet assets; (b) 0.25% of the unpaid principal balance of outstanding
Fannie Mae MBS held by third parties and (c) up to 0.25% of other off-balance sheet obligations, which may be
adjusted by the Director of OFHEO under certain circumstances.
(9)
Defined as the surplus of core capital over required critical capital expressed as a percentage of required critical
capital.
Capital Classification
The 1992 Act requires the Director of OFHEO to determine the capital level and classification at least
quarterly. If OFHEO finds that we fail to meet these regulatory capital standards, we become subject to certain
restrictions and requirements. OFHEO originally classified us as adequately capitalized as of December 31,
2002 and 2003 and significantly undercapitalized as of December 31, 2004. In December 2006, however,
following our issuance of restated financial statements, OFHEO reclassified us as significantly undercapitalized
as of 2003 as well. OFHEO has classified us as adequately capitalized as of March 31, 2005 and for all
quarterly periods thereafter through December 31, 2006.
In response to the initial findings from OFHEO’s September 2004 special examination interim report, we
entered into the September 27, 2004 agreement with OFHEO (the “OFHEO Agreement”), which required us
to take a series of steps with respect to our internal controls, organization and staffing, governance, accounting
and capital. In accordance with the OFHEO Agreement, which, as described below, has since been terminated,
we were required to obtain prior written approval from the Director of OFHEO before engaging in certain
capital transactions, including payments made to repurchase, redeem, retire or otherwise acquire any of our
shares, the calling of preferred stock, as well as restrictions on dividend payments described below.
As part of the OFHEO Agreement, we pledged to maintain the computed minimum capital surplus percentage
of 18.5% that we reported as of August 31, 2004, and to achieve a targeted capital surplus equal to 30% over
the statutory required minimum capital requirement within 270 days of the agreement. In November 2004,
pursuant to the OFHEO Agreement, we submitted a capital plan to OFHEO for the Director’s approval
detailing how management intended to achieve the 30% surplus requirement, including alternative strategies
that might be employed in response to various market developments.
On December 21, 2004, following the SEC’s determination that we should restate our financial statements,
OFHEO classified us as significantly undercapitalized as of September 30, 2004 and directed us to submit a
capital restoration plan that would provide for compliance with our statutory minimum capital requirement
plus a surplus of 30% over the same requirement. The final capital restoration plan was approved by OFHEO
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)