Fannie Mae 2006 Annual Report Download - page 134

The Management Executive Committee, which is chaired by the Chief Executive Officer and composed of
principal executive officers of the company, has responsibility for reviewing and providing oversight of our
enterprise-wide risk tolerance policies and our enterprise-wide risk framework, addressing issues referred to it
by our risk committees, addressing matters that involve multiple types of risks and addressing other significant
business and reputational risks.
Business Units
Each business unit is responsible for identifying, measuring and managing key credit risks within its business
consistent with corporate policies. In addition, each business unit has business unit risk managers who are
responsible for ensuring that there are clear delineations of responsibility for managing credit risk, adequate
systems for measuring credit risk, appropriately structured limits on risk taking, effective internal controls and
a comprehensive risk reporting process. As part of our risk governance structure, we have established within
each business unit risk committees that are responsible for decisions relating to risk strategy, policies and
controls.
Internal Audit and Office of Compliance and Ethics
Our Internal Audit group, under the direction of the Chief Audit Executive, provides an objective assessment
of the design and execution of our internal control system, including our management systems, our risk
governance, and our policies and procedures. Internal Audit activities are designed to provide reasonable
assurance that resources are safeguarded; significant financial, managerial and operating information is
complete, accurate and reliable; and employee actions comply with our policies and applicable laws and
regulations.
Our Office of Compliance and Ethics, under the direction of the Chief Compliance Officer, is responsible for
developing corporate policies related to compliance, ethics and investigations; overseeing our compliance activities
and coordinating our OFHEO and HUD regulatory reporting and examinations; developing and promoting a code
of ethical conduct; anti-fraud management; and evaluating and investigating any allegations of misconduct.
Credit Risk Management
We are generally subject to two types of credit risk: mortgage credit risk and institutional counterparty credit
risk. The degree of credit risk to which we are exposed will vary based on many factors, including the risk
profile of the borrower or counterparty, the contractual terms of the agreement, the amount of the transaction,
repayment sources, the availability and quality of collateral and other factors relevant to current market
conditions, events and expectations. We evaluate these factors and actively manage, on an aggregate basis, the
extent and nature of the credit risk we bear, with the objective of ensuring that we are adequately compensated
for the credit risk we take, consistent with our mission goals. We discuss how we manage mortgage credit risk
in the section below, and we discuss how we manage institutional counterparty risk beginning on page 137.
We also discuss measures that we use to assess our credit risk exposure.
Mortgage Credit Risk Management
Mortgage credit risk is the risk that a borrower will fail to make required mortgage payments. We are exposed
to credit risk on our mortgage credit book of business because we either hold the mortgage assets or have
issued a guaranty in connection with the creation of Fannie Mae MBS backed by mortgage assets. Our
mortgage credit book of business consists of the following on-and off-balance sheet arrangements:
• single-family and multifamily mortgage loans held in our portfolio;
• Fannie Mae MBS and non-Fannie Mae mortgage-related securities held in our portfolio;
• Fannie Mae MBS held by third-party investors; and
• credit enhancements that we provide on mortgage assets.
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