Fannie Mae 2007 Annual Report Download - page 53

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:
• authorize the regulator to establish standards for measuring the composition and growth of our mortgage
investment portfolio;
• authorize the regulator to increase the level of our required capital, to the extent needed to ensure safety
and soundness;
• require prior regulatory approval and a 30-day public notice and comment period for all new products;
• restructure the housing goals and change the method for enforcing compliance;
• authorize, and in some instances require, the appointment of a receiver if we become critically
undercapitalized; and
• require us and Freddie Mac to contribute a percentage of our book of business—the sponsor of the bill
has estimated a total contribution by us and Freddie Mac combined of $500 million to $600 million per
year—to a fund to support affordable housing.
In addition, in October 2007, the House passed H.R. 2895, a bill to establish a National Affordable Housing
Trust Fund to support housing that is affordable to low-income families. This Trust Fund would consist in part
of amounts provided by us and Freddie Mac under the affordable housing fund provisions of H.R. 1427. H.R.
2895 does not seek to impose any new obligations on us that do not already exist under H.R. 1427 and is
dependent upon passage of H.R. 1427 for funding.
As of the date of this filing, the only comprehensive GSE reform bill that has been introduced in the Senate is
S. 1100. This bill is substantially similar to a bill that was approved by the Senate Committee on Banking,
Housing, and Urban Affairs in July 2005, and differs from H.R. 1427 in a number of respects. It is expected
that a version of GSE reform legislation more similar to H.R. 1427 could be introduced in the Senate, but the
timing is uncertain. Further, we cannot predict the content of any Senate bill that may be introduced or its
prospects for Committee approval or passage by the full Senate.
In addition, S. 2391, the “GSE Mission Improvement Act,” has been introduced in the Senate. This bill would
establish an affordable housing program funded by us and Freddie Mac. The sponsor of the bill has estimated
our combined payment under the bill to be $500 million to $900 million per year. The bill would also modify
our affordable housing goals and create a new statutory duty to serve specified underserved markets.
Enactment of legislation similar to these bills could significantly increase the costs of our compliance with
regulatory requirements and limit our ability to compete effectively in the market, resulting in a material
adverse effect on our liquidity, earnings and financial condition. We cannot predict the prospects for the
enactment, timing or content of any congressional legislation, or the impact that any enacted legislation could
have on our liquidity, earnings or financial condition.
We must evaluate our ability to realize the tax benefits associated with our deferred tax assets quarterly. In
the future, we may be required to record a material expense to establish a valuation allowance against our
deferred tax assets, which likely would materially adversely affect our earnings, financial condition and
capital position.
As of December 31, 2007, we had approximately $13.0 billion in net deferred tax assets on our consolidated
balance sheet that we must evaluate for realization on a quarterly basis under Statement of Financial
Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes (“SFAS 109”). Deferred tax assets
refer to assets on our consolidated balance sheets that relate to amounts that may be used to reduce any
subsequent period’s income tax expense. Consequently, our ability to use these deferred tax assets in future
periods depends on our ability to generate sufficient taxable income in the future.
If, in a future period, negative evidence regarding our ability to realize our deferred tax assets (such as a
reduction in our projected future taxable income) outweighed positive evidence, we could be required to
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