Fannie Mae 2007 Annual Report Download - page 38

In 2007, we believe that we met each of our three housing goals, as well as the “underserved areas” home
purchase subgoal and “multifamily special affordable housing” subgoal. However, based on our preliminary
calculations, we believe that we did not meet our “low- and moderate-income housing” and “special affordable
housing” home purchase subgoals. We expect to submit our 2007 Annual Housing Activities Report to HUD
in March 2008, and HUD will make the final determination regarding our housing goals performance for
2007.
Declining market conditions and the increased goal levels in 2007 made meeting our housing goals and
subgoals even more challenging than in previous years. Challenges to meeting our housing goals and subgoals
in 2007 included deteriorating conditions in the mortgage credit markets and reduced housing affordability.
Housing affordability has declined significantly in the past several years, due to previous increases in home
prices, increases in interest rates from previous historically low levels and reduced income growth rates. The
credit tightening that began in the second half of 2007 also contributed to reduced affordability. These difficult
market conditions negatively impacted market opportunities to purchase mortgages that satisfied the subgoal
requirements. We expect these market conditions to continue to affect our ability to meet our housing goals
and subgoals in 2008. Moreover, all of the housing goals and one of the housing subgoals have increased for
2008.
The housing goals are subject to enforcement by the Secretary of HUD. The subgoals, however, are treated
differently. Pursuant to the 1992 Act, the “low- and moderate-income housing” and “underserved areas” home
purchase subgoals are not enforceable by HUD. However, HUD has taken the position that the “special
affordable housing” and “multifamily special affordable housing” subgoals are enforceable. If our efforts to
meet the housing goals and special affordable housing subgoals prove to be insufficient, we may become
subject to a housing plan that could require us to take additional steps that could have an adverse effect on our
profitability. HUD’s regulations state that HUD shall require us to submit a housing plan if we fail to meet
one or more housing goals and HUD determines that achievement was feasible, taking into account market
and economic conditions and our financial condition. The housing plan must describe the actions we will take
to meet the goal in the next calendar year. If HUD determines that we have failed to submit a housing plan or
to make a good faith effort to comply with the plan, HUD has the right to take certain administrative actions.
The potential penalties for failure to comply with the housing plan requirements are a cease-and-desist order
and civil money penalties.
There is no penalty for failing to meet the “low- and moderate-income housing” home purchase subgoal,
because it is not enforceable. However, if HUD determines that achievement of the “special affordable
housing” home purchase subgoal was feasible in 2007, we may become subject to a housing plan as described
above.
See “Item 1A—Risk Factors” for a description of how changes we have made to our business strategies in
order to meet HUD’s housing goals and subgoals have increased our credit losses and may reduce our
profitability.
OFHEO Regulation
OFHEO is an independent office within HUD that is responsible for ensuring that we are adequately
capitalized and operating safely in accordance with the 1992 Act. OFHEO has agency examination authority,
and we are required to submit to OFHEO annual and quarterly reports on our financial condition and results
of operations. OFHEO is authorized to levy annual assessments on Fannie Mae and Freddie Mac, to the extent
authorized by Congress, to cover OFHEO’s reasonable expenses. OFHEO’s formal enforcement powers
include the power to impose temporary and final cease-and-desist orders and civil monetary penalties on the
company and our directors and executive officers.
OFHEO Consent Order
In 2003, OFHEO began a special examination of our accounting policies and practices, internal controls,
financial reporting, corporate governance, and other matters. In May 2006, concurrently with OFHEO’s release
of its final report of the special examination, we agreed to OFHEO’s issuance of a consent order that resolved
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