Fannie Mae 2007 Annual Report Download - page 56

in 2006 to $2.5 trillion in 2007. A decline in the rate of growth in mortgage debt outstanding reduces the
number of mortgage loans available for us to purchase or securitize, which in turn could lead to a reduction in
our net interest income and guaranty fee income. If we do not continue to increase our share of the secondary
mortgage market, this decline in mortgage originations could adversely affect our earnings and financial
condition.
Changes in general market and economic conditions in the United States and abroad may adversely affect
our earnings and financial condition.
Our earnings and financial condition may be adversely affected by changes in general market and economic
conditions in the United States and abroad. These conditions include short-term and long-term interest rates,
the value of the U.S. dollar compared with the value of foreign currencies, the rate of inflation, fluctuations in
both the debt and equity capital markets, employment growth and unemployment rates, and the strength of the
U.S. national economy and local economies in the United States and economies of other countries with
investors that hold our debt. These conditions are beyond our control and may change suddenly and
dramatically.
Changes in market and economic conditions could adversely affect us in many ways, including the following:
• fluctuations in the global debt and equity capital markets, including sudden and unexpected changes in
short-term or long-term interest rates, could decrease the fair value of our mortgage assets, derivatives
positions and other investments, negatively affect our ability to issue debt at attractive rates, and reduce
our net interest income; and
• a recession or other economic downturn, or rising unemployment, in the United States, either as a whole
or in specific regions of the country, could decrease homeowner demand for mortgage loans and increase
the number of homeowners who become delinquent or default on their mortgage loans. An increase in
delinquencies or defaults would likely result in a higher level of credit losses and credit-related expenses,
which would reduce our earnings. Also, decreased homeowner demand for mortgage loans could reduce
our guaranty fee income, net interest income and the fair value of our mortgage assets. A recession or
other economic downturn could also increase the risk that our counterparties will default on their
obligations to us or become insolvent, resulting in a reduction in our earnings and thereby adversely
affecting our capital position and financial condition.
Our business is subject to uncertainty as a result of the current disruption in the housing and mortgage
markets.
We expect the current disruption in the housing and mortgage markets to continue and worsen in 2008. The
disruption has adversely affected the U.S. economy in general and the housing and mortgage markets in
particular and likely will continue to do so. In addition, a variety of legislative, regulatory and other proposals
have been or may be introduced in an effort to address the disruption. Depending on the scope and nature of
legislative, regulatory or other initiatives, if any, that are adopted to respond to this disruption, our earnings,
liquidity, capital position and financial condition could be adversely affected.
Defaults by a large financial institution could adversely affect our business and financial markets generally.
We routinely enter into a high volume of transactions with counterparties in the financial services industry.
The financial soundness of many financial institutions may be closely interrelated as a result of credit, trading
or other relationships between the institutions. As a result, concerns about, or a default or threatened default
by, one institution could lead to significant market-wide liquidity problems, losses or defaults by other
institutions. This may adversely affect financial intermediaries, such as clearing agencies, clearing houses,
banks, securities firms and exchanges, with which we interact on a daily basis, and therefore could adversely
affect our business.
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