Fannie Mae 2008 Annual Report Download - page 155

believe that the actual and perceived risk that we will be unable to refinance our debt as it becomes due
remains and is likely to increase substantially as we progress toward December 31, 2009, which is the date on
which the Treasury credit facility terminates.
In November 2008, the Federal Reserve announced a program under which it will purchase: (1) up to
$100 billion in direct obligations of Fannie Mae, Freddie Mac and the FHLBs through a series of competitive
auctions conducted with the Federal Reserve’s primary dealers; and (2) up to $500 billion in mortgage-backed
securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. As of February 18, 2009, the Federal
Reserve had purchased $33.6 billion in federal agency debt securities and $65.3 billion in mortgage-backed
securities guaranteed by Fannie Mae, Freddie Mae or Ginnie Mae. According to the Federal Reserve,
purchases of both the direct obligations and the mortgage-backed securities are expected to take place over
several quarters, with purchases of $500 billion of agency mortgage-backed securities expected to be
completed by the end of the second quarter of 2009.
We believe that this program, in addition to changes in the market’s assessment of U.S. government support
for our business, contributed to improvements in our access to the short- and long-term debt markets since
November 2008. In December 2008 and early January 2009, spreads or rates on our debt compared with rates
on Treasury instruments tightened, or decreased, significantly. In addition, the interest rates we pay on our
new issuances of short-term debt securities have decreased since November 2008, and as a result we have seen
improvement in our short-term debt yields. Additionally, demand for our long-term debt and callable structures
has increased noticeably since November 2008. Weekly callable issuance volume increased from an average of
$310 million in November 2008 to $3.2 billion for the months of December 2008 and January 2009. In
January 2009, we issued $6.0 billion of three-year Benchmark Notes. In February 2009, we issued $7.0 billion
of five-year Benchmark Notes, which at that time was the largest single issuance of this maturity in our
history.
Due to the limitations on our ability to issue long-term debt, during the period from July through November
2008, we relied increasingly on the issuance of short-term debt to pay off our maturing debt and to fund our
ongoing business activities. We issued a higher amount of short-term debt than long-term debt during the last
two quarters of 2008, as compared with the last two quarters of 2007. In September and October 2008, we
increased our purchases of mortgage assets to provide additional liquidity to the mortgage market, and, given
our reduced access to the long-term debt markets, we funded these purchases primarily through the issuance of
additional short-term debt. In addition, beginning in September and continuing through the fourth quarter of
2008, we significantly increased our portfolio of cash and cash equivalents and funded these purchases
exclusively through the issuance of additional short-term debt. As a result of these activities and the
limitations on our ability to issue long-term debt, our outstanding short-term debt increased as a percentage of
our total outstanding debt and the aggregate weighted-average maturity of our debt decreased to 42 months as
of December 31, 2008, from 48 months as of December 31, 2007.
Because consistent demand for both our debt securities with maturities greater than one year and our callable
debt was low between July and November 2008, we were forced to rely increasingly on short-term debt to
fund our purchases of mortgage loans, which are by nature long-term assets. As a result, we will be required
to refinance, or “roll-over,” our debt on a more frequent basis, exposing us to an increased risk, particularly
when market conditions are volatile, that demand will be insufficient to permit us to refinance our debt
securities as necessary and to risks associated with refinancing under adverse credit market conditions. Further,
we expect that our “roll-over,” or refinancing, risk is likely to increase substantially as we approach year-end
2009 and the expiration of the Treasury credit facility.
As of February 26, 2009, we have continued to pay our obligations as they become due, and we have
maintained sufficient access to the unsecured debt markets to avoid triggering our liquidity contingency plan.
We continue to monitor the current volatile market conditions to determine the impact of these conditions on
our funding and liquidity. Future disruptions in the financial markets could result in adverse changes in the
amount, mix and cost of funds we obtain and could have a material adverse impact on our liquidity, financial
condition and results of operations. See “Part I—Item 1A—Risk Factors” for a discussion of the risks to our
business related to our ability to obtain funds for our operations through the issuance of debt securities, the
relative cost at which we are able to obtain these funds and our liquidity contingency plans.
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