Fannie Mae 2007 Annual Report Download - page 5

3
2007 ANNUAL REPORT
Letter to Shareholders
Daniel H. Mudd
President and
Chief Executive
Offi cer
RAHUL N. MERCHANT, EXECUTIVE VICE PRESIDENT AND CHIEF INFORMATION OFFICER AND
KENNETH J. BACON, EXECUTIVE VICE PRESIDENT, HOUSING AND COMMUNITY DEVELOPMENT
Dear Shareholders,
Last year marked the start of the worst
housing market in a generation. The
decline and fall of housing, normally a
pillar of the U.S. economy, touched off
a crisis that has spread from the rows
of empty homes in Las Vegas, Detroit
and other American cities to the
balance sheets of many of the world’s
largest fi nancial institutions.
Fannie Mae is not immune to the
housing market crisis. We serve the
U.S. mortgage fi nance system, and
that system is being tested. But with
our solid capital position, healthy
reserves, and central role in the
mortgage fi nance system, Fannie Mae
has brought a much-needed measure
of stability to a volatile and uncertain
market.
Providing stability, liquidity and
affordability amidst the housing
market turmoil has not been easy,
and our $2.1 billion net loss in 2007
is a refl ection of that. Yet we believe
that by performing our mission, and
by playing both defense and offense
through the disruption, we are creating
lasting value that will accrue to our
shareholders over time. In market
crises, fi rms that husband capital,
invest wisely where others retreat, and
prudently manage their risks tend to
thrive in the long run. That is our
approach at Fannie Mae.
I will discuss the drivers of our 2007
performance in a moment. But before
I do, I want to give you a sense of how
your capital was used to grow the
business in 2007. The total mortgage
credit book grew 14 percent and
our guaranty fee income grew
19 percent to $5.1 billion. As many
of our competitors left the fi eld and the
mortgage market fl ocked to the quality
of our guaranty, we experienced
near-record demand for Fannie Mae’s
fl agship business of packaging home
loans into our mortgage-backed
securities. Our market share of new
mortgage-related securities issuances
in the fourth quarter nearly doubled
year-over-year.
As we grow, we have been vigilant
about the quality of new business
we are adding to our guaranty book.
Our focus is on adding well-priced,
high-quality assets, with higher
down payments, higher credit scores
and more documentation from the
borrowers. Therefore, going forward,
I believe the long-term gain will
outweigh the short-term pain, and the
book we are building now will serve
our business and shareholders well in
the future.
In this letter, I will review our 2007
results and the key drivers, give you
my sense of market conditions in 2008,
and then describe our plan to work
through the correction, get to recovery,
and improve our results.