Fannie Mae 2006 Annual Report Download - page 44

Competition in the mortgage and financial services industries, and the need to develop, enhance, and
implement strategies to adapt to changing trends in the mortgage industry and capital markets, may
adversely affect our financial condition and earnings.
We compete to acquire mortgage assets for our mortgage portfolio or to securitize mortgage assets into Fannie
Mae MBS based on a number of factors, including our speed and reliability in closing transactions, our
products and services, the liquidity of Fannie Mae MBS, our reputation and our pricing. We face competition
in the secondary mortgage market from other GSEs and from large commercial banks, savings and loan
institutions, securities dealers, investment funds, insurance companies and other financial institutions. In
addition, increased consolidation within the financial services industry has created larger financial institutions,
increasing pricing pressure. The recent decreased rate of growth in U.S. residential mortgage debt outstanding
in 2006 and continuing into 2007 has also increased competition in the secondary mortgage market by
decreasing the supply of new mortgage loans available for purchase.
We also expect private-label issuers to provide increased competition to our HCD business through their use of
CMBS, which often package loans secured by multifamily residential property together with higher yielding
loans secured by commercial properties.
This increased competition may adversely affect our business and financial condition and reduce our earnings.
Our ability to develop, enhance, and implement strategies to adapt to changing conditions in the mortgage
industry and capital markets, may adversely affect our financial condition and earnings.
The manner in which we compete and the products for which we compete are affected by changing conditions
which can take the form of trends or sudden changes to trends in our industry. If we do not effectively
respond to these changes, or if our strategies to respond to these changes are not as successful as our prior
business strategies, our earnings and liquidity may be reduced and our business and financial condition could
be adversely affected. For example, in recent years, the proportion of single-family mortgage loan originations
consisting of nontraditional mortgages has increased, and demand for traditional 30-year fixed-rate mortgages,
which represents the largest portion of our business volume, decreased. We did not purchase or guarantee
large amounts of these nontraditional mortgages in 2004, 2005 or 2006 and, as a result, our estimated share of
the single-family mortgage market decreased substantially during this period.
Additionally, we may not be able to execute successfully any new or enhanced strategies that we adopt to
address changing conditions. In addition, our strategies, even if fully implemented, may not increase our share
of the secondary mortgage market, our revenues or our earnings due to factors beyond our control.
Legislation that would change the regulation of our business could, if enacted, reduce our competitiveness
and adversely affect our liquidity, results of operations and financial condition.
The U.S. Congress continues to consider legislation that, if enacted, could materially restrict our operations
and adversely affect our business and our earnings. On May 22, 2007, the House of Representatives approved
a bill, H.R. 1427, that would establish a new, independent regulator for us and the other GSEs, with broad
authority over both safety and soundness and mission. The bill, if enacted into law, would affect us in
significant ways, including:
• authorizing the regulator to establish standards by which it may limit the composition and growth of our
mortgage investment portfolio;
• authorizing the regulator to increase the level of our required capital for safety and soundness;
• authorizing the regulator to review new and existing products and activities for safety and soundness and
mission compliance, and requiring prior regulatory approval for all new products;
• restructuring the housing goals and changing the method for enforcing compliance;
• authorizing, and in some instances requiring, the appointment of a receiver if we become critically
undercapitalized; and
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