Fannie Mae 2007 Annual Report Download - page 264

Our minimum capital and critical capital requirements are met with core capital holdings. Defined in the
statute, core capital is equal to the sum of the stated value of outstanding common stock (common stock less
treasury stock), the stated value of outstanding non-cumulative perpetual preferred stock, paid-in capital and
retained earnings, as determined in accordance with GAAP. The statutory minimum capital requirement is
generally equal to the sum of: (i) 2.50% of on-balance sheet assets; (ii) 0.45% of the unpaid principal balance
of outstanding Fannie Mae MBS held by third parties; and (iii) 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). The critical capital requirement is generally
equal to the sum of: (i) 1.25% of on-balance sheet assets; (ii) 0.25% of the unpaid principal balance of
outstanding Fannie Mae MBS held by third parties; and (iii) up to 0.25% of other off-balance sheet
obligations, which may be adjusted by the Director of OFHEO under certain circumstances.
OFHEO’s risk-based capital requirement ties our capital requirements to the risk in our mortgage credit book
of business, as measured by a stress test model. The stress test simulates our financial performance over a ten-
year period of severe economic conditions characterized by both extreme interest rate movements and high
mortgage default rates. Simulation results indicate the amount of capital required to survive this prolonged
period of economic stress without new business or active risk management action. In addition to this model-
based amount, the risk-based capital requirement includes a 30% surcharge to cover unspecified management
and operations risks.
Each quarter, OFHEO runs a detailed profile of our mortgage credit book of business through the stress test
simulation model. The model generates cash flows and financial statements to evaluate our risk and measure
our capital adequacy during the ten-year stress horizon. As part of its quarterly capital classification
announcement, OFHEO makes these stress test results publicly available.
The following table displays our statutory and OFHEO—directed minimum capital classification measures and
our statutory critical capital classification measures as of December 31, 2007 and 2006.
2007
(1)
2006
As of December 31,
(Dollars in millions)
Core capital
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $45,373 $41,950
Statutory minimum capital
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,927 29,359
Surplus of core capital over statutory minimum capital . . . . . . . . . . . . . . . . . . . . . . . . . . $13,446 $12,591
Surplus of core capital percentage over statutory minimum capital . . . . . . . . . . . . . . . . . . 42.1% 42.9%
Core capital
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $45,373 $41,950
OFHEO-directed minimum capital
(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,505 38,166
Surplus of core capital over OFHEO-directed minimum capital . . . . . . . . . . . . . . . . . . . . $ 3,868 $ 3,784
Surplus of core capital percentage over OFHEO-directed minimum capital . . . . . . . . . . . . 9.3% 9.9%
Core capital
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $45,373 $41,950
Statutory critical capital
(5)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,525 15,149
Surplus of core capital over statutory critical capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,848 $26,801
Surplus of core capital percentage over statutory critical capital . . . . . . . . . . . . . . . . . . . . 174.6% 176.9%
Total capital
(6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $48,658 $42,703
(1)
Amounts as of December 31, 2007 represent estimates that will be submitted to OFHEO for its certification and are
subject to its review and approval. Amounts as of December 31, 2006 represent OFHEO’s announced capital
classification measures.
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)