Fannie Mae 2007 Annual Report Download - page 46

Forward-looking statements reflect our management’s expectations or predictions of future conditions, events
or results based on various assumptions and management’s estimates of trends and economic factors in the
markets in which we are active, as well as our business plans. They are not guarantees of future performance.
By their nature, forward-looking statements are subject to risks and uncertainties. Our actual results and
financial condition may differ, possibly materially, from the anticipated results and financial condition
indicated in these forward-looking statements. There are a number of factors that could cause actual
conditions, events or results to differ materially from those described in the forward-looking statements
contained in this report, including those factors described in “Item 1A—Risk Factors” of this report.
Readers are cautioned to place forward-looking statements in this report or that we make from time to time
into proper context by carefully considering the factors discussed in “Item 1A—Risk Factors” in evaluating
these forward-looking statements. These forward-looking statements are representative only as of the date they
are made, and we undertake no obligation to update any forward-looking statement as a result of new
information, future events or otherwise, except as required under the federal securities laws.
Item 1A. Risk Factors
This section identifies specific risks that should be considered carefully in evaluating our business. The risks
described in “Company Risks” are specific to us and our business, while those described in “Risks Relating to
Our Industry” relate to the industry in which we operate. Any of these risks could adversely affect our
business, earnings, cash flows or financial condition. We believe that these risks represent the material risks
relevant to us, our business and our industry, but new material risks to our business may emerge that we are
currently unable to predict. The risks discussed below could cause our actual results to differ materially from
our historical results or the results contemplated by the forward-looking statements contained in this report.
Refer to “Part II—Item 7—MD&A—Risk Management” for a more detailed description of the primary risks
to our business and how we seek to manage those risks.
COMPANY RISKS
Increased delinquencies and credit losses relating to the mortgage assets that we own or that back our
guaranteed Fannie Mae MBS continue to adversely affect our earnings, financial condition and capital
position.
We are exposed to credit risk relating to both the mortgage assets that we hold in our investment portfolio and
the mortgage assets that back our guaranteed Fannie Mae MBS. Borrowers of mortgage loans that we own or
that back our guaranteed Fannie Mae MBS may fail to make required payments of principal and interest on
those loans, exposing us to the risk of credit losses.
We have experienced increased mortgage loan delinquencies and credit losses, which had a material adverse
effect on our earnings, financial condition and capital position in 2007. Weak economic conditions in the
Midwest and home price declines on a national basis, particularly in Florida, California, Nevada and Arizona,
increased our single-family serious delinquency rate and contributed to higher default rates and loan loss
severities in 2007. We are experiencing high serious delinquency rates and credit losses across our
conventional single-family mortgage credit book of business, especially for loans to borrowers with low credit
scores and loans with high loan-to-value (“LTV”) ratios. In addition, in 2007 we experienced particularly rapid
increases in serious delinquency rates and credit losses in some higher risk loan categories, such as Alt-A
loans, adjustable-rate loans, interest-only loans, negative amortization loans, loans made for the purchase of
condominiums and loans with second liens. Many of these higher risk loans were originated in 2006 and the
first half of 2007. Refer to “Part II—Item 7—MD&A—Risk Management—Credit Risk Management—
Mortgage Credit Risk Management” for the percentage that each of these loan categories represents of our
total conventional single-family mortgage credit book of business.
We expect these trends to continue and that we will experience increased delinquencies and credit losses in
2008 as compared with 2007. The amount by which delinquencies and credit losses will increase in 2008 will
depend on a variety of factors, including the extent of national and regional declines in home prices, interest
rates and employment rates. In particular, we expect that the onset of a recession, either in the United States
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