Fannie Mae 2006 Annual Report Download - page 112

term and long-term funding needs, and we anticipate that they will remain adequate. Due to the reduction in
the size of our mortgage portfolio after December 31, 2004 pursuant to our capital restoration plan, our debt
funding requirements have been lower in 2005, 2006 and in 2007 to date than in 2003 and 2004. However, we
remain an active issuer of short-term and long-term debt securities. During 2006, we issued $2.1 trillion in
short-term debt, and $181 million in long-term debt. Our short-term and long-term funding needs during 2007
and 2008 are generally expected to be consistent with our needs during 2006, and with the uses of cash
described above under “Liquidity.”
As described in “Item 1—Business—Our Charter and Regulation of Our Activities—Regulation and Oversight
of Our Activities—OFHEO Regulation—OFHEO Consent Order,” pursuant to the OFHEO consent order, we
are currently not permitted to increase our net mortgage portfolio assets above the amount shown in our
minimum capital report to OFHEO as of December 31, 2005 ($727.75 billion). We expect that, over the long
term, our funding needs and sources of liquidity will remain relatively consistent with current needs and
sources. We may increase our issuance of debt in future years if we decide to increase our purchase of
mortgage assets following any modification or expiration of the current limitation on the size of our mortgage
portfolio.
On June 13, 2006, the U.S. Department of the Treasury announced that it would undertake a review of its
process for approving our issuances of debt, which could adversely impact our flexibility in issuing debt
securities in the future. We cannot predict whether the outcome of this review will materially impact our
current debt issuance activities.
Change in the Federal Reserve Board’s Payments System Risk Policy
On July 20, 2006, the Federal Reserve Banks implemented changes to the Federal Reserve Board’s “Policy
Statement on Payments System Risk.” The changes pertain to the processing of principal and interest
payments, via the Fedwire system, for securities issued by GSEs and certain international organizations,
including us.
Prior to July 2006, the Federal Reserve Bank had exempted us from overdraft fees relating to the processing
of interest and redemption payments on our debt and Fannie Mae MBS. We were permitted to overdraw our
account at the Federal Reserve Bank for these payments and would make periodic payments throughout the
business day until our account balance was zero. Since July 2006, we have been required to fund interest and
redemption payments on our debt and Fannie Mae MBS before the Federal Reserve Banks, acting as our fiscal
agent, will execute the payments on our behalf. We compensate the Federal Reserve Banks for this service.
Because we receive funds and make payments throughout each business day, we have implemented actions,
including revising our funding strategies, to ensure that we will have access to funds to meet our payment
obligations in a timely manner. We have established and periodically may use secured and unsecured intraday
funding lines of credit with several large financial institutions. In 2006, we opened six intraday lines of credit
with financial institutions in connection with the revised Federal Reserve policy. Certain of these lines of
credit require that we post collateral which, in certain limited circumstances, the secured party has the right to
repledge to third parties, including the Federal Reserve Bank. As of December 31, 2006, we have
approximately $30 billion of securities available for pledge to these parties. These lines of credit are
uncommitted intraday loan facilities. As a result, while we expect to continue to use these facilities, we may
not be able to draw on them if and when needed. We are currently funding security holder payments on a
daily basis and are fully compliant with the revised Federal Reserve policy.
Credit Ratings and Risk Ratings
Our ability to borrow at attractive rates is highly dependent upon our credit ratings. Our senior unsecured debt
(both long-term and short-term), benchmark subordinated debt and preferred stock are rated and continuously
monitored by Standard & Poor’s, a division of The McGraw Hill Companies (“Standard & Poor’s”), Moody’s
Investor Service (“Moody’s”), and Fitch Ratings (“Fitch”), each of which is a nationally recognized statistical
rating organization. Table 25 below sets forth the credit ratings issued by each of these rating agencies of our
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