Fannie Mae 2008 Annual Report Download - page 18

Outlook
During the fourth quarter of 2008, our outlook for 2009 worsened.
Overall Market Conditions: We expect that the current crisis in the U.S. and global financial markets will
continue, which will continue to adversely affect our financial results throughout 2009. We expect the
unemployment rate to continue to increase as the economic recession continues. We expect to continue to
experience home price declines and rising default and severity rates, all of which may worsen as
unemployment rates continue to increase and if the U.S. continues to experience a broad-based recession. We
expect mortgage debt outstanding to shrink by approximately 0.2% in 2009. We continue to expect the level
of foreclosures and single-family delinquency rates to increase further in 2009.
Home Price Declines: Following a decline of approximately 9% in 2008, we expect that home prices will
decline another 7% to 12% on a national basis in 2009. We now expect that we will experience a peak-to-
trough home price decline of 20% to 30%, rather than the 15% to 19% decline we predicted last year. These
estimates contain significant inherent uncertainty in the current market environment, due to historically
unprecedented levels of uncertainty regarding a variety of critical assumptions we make when formulating
these estimates, including: the effect of actions the federal government may take with respect to national
economic recovery; the impact of those actions on home prices, unemployment, and the general economic
environment; and the rate of unemployment and/or wage decline. Because of these uncertainties, the actual
home price decline we experience may differ significantly from these estimates. We also expect significant
regional variation in home price decline percentages, with steeper declines in certain areas such as Florida,
California, Nevada and Arizona.
Our estimate of a 7% to 12% home price decline for 2009 compares with a home price decline of approximately
12% to 18% using the S&P/Case-Schiller index method, and our 20% to 30% peak-to-trough home price decline
estimate compares with an approximately 33% to 46% peak-to-trough decline using the S&P/Case-Schiller index
method. Our estimates differ from the S&P/Case-Schiller index in two principal ways: (1) our estimates weight
expectations for each individual property by number of properties, whereas the S&P/Case-Schiller index weights
expectations of home price declines based on property value, such that declines in home prices on higher priced
homes will have a greater effect on the overall result; and (2) our estimates do not include sales of foreclosed
homes because we believe that differing maintenance practices and the forced nature of the sales make them less
representative of market values, whereas the S&P/Case-Schiller index includes foreclosed property sales. The S&P/
Case-Schiller comparison numbers shown above are calculated using our models and assumptions, but modified to
use these two factors (weighting of expectations based on property value and the inclusion of foreclosed property
sales). In addition to these differences, our estimates are based on our own internally available data combined with
publicly available data, and are therefore based on data collected nationwide, whereas the S&P/Case-Schiller index
is based only on publicly available data, which may be limited in certain geographies. Our comparative
calculations to the S&P/Case-Schiller index provided above are not modified to account for this data pool
difference.
Credit Losses and Loss Reserves: We continue to expect our credit loss ratio (which excludes SOP 03-3 fair
value losses and HomeSaver Advance fair value losses) in 2009 will exceed our credit loss ratio in 2008. We
also expect a significant increase in our SOP 03-3 fair value losses as we increase the number of loans we
repurchase from MBS trusts in order to modify them. In addition, we expect significant continued increases in
our combined loss reserves through 2009.
Liquidity: Although our access to the debt markets has improved noticeably since late November 2008, we
expect continued pressure on our access to the debt markets throughout 2009 at economically attractive rates.
Further, we expect the pressure will become increasingly great as we approach the expiration of the Treasury
credit facility at the end of 2009. Pressure on our ability to access the debt markets at attractive rates,
particularly our ability to issue long-term debt at attractive rates, increases our borrowing costs as well as our
“roll over” risk, limits our ability to grow and to manage our market and liquidity risk effectively, and
increases the likelihood that we may need to borrow under the Treasury credit facility.
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