Fannie Mae 2008 Annual Report Download - page 286

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Conservatorship
We are a stockholder-owned corporation organized and existing under the Federal National Mortgage
Association Charter Act, (“The Charter Act” or our “charter”). We are a government-sponsored enterprise
(“GSE”), and we are subject to government oversight and regulation. Our regulators include the Federal
Housing Finance Agency (“FHFA”), the U.S. Department of Housing and Urban Development (“HUD”), the
U.S. Securities and Exchange Commission (“SEC”), and the U.S. Department of Treasury (“Treasury”).
Through July 29, 2008, we were regulated by the Office of Federal Housing Enterprise Oversight (“OFHEO”),
which was replaced on July 30, 2008 with FHFA upon the enactment of the Federal Housing Finance
Regulatory Reform Act of 2008 (“Regulatory Reform Act”). On September 6, 2008, we were placed into
conservatorship by the Director of FHFA. See “Conservatorship” below in this note. The U.S. government
does not guarantee, directly or indirectly, our securities or other obligations.
We operate in the secondary mortgage market by purchasing mortgage loans and mortgage-related securities,
including mortgage-related securities guaranteed by us, from primary mortgage market institutions, such as
commercial banks, savings and loan associations, mortgage banking companies, securities dealers and other
investors. We do not lend money directly to consumers in the primary mortgage market. We provide additional
liquidity in the secondary mortgage market by issuing guaranteed mortgage-related securities.
We operate under three business segments: Single-Family Credit Guaranty (“Single-Family”), Housing and
Community Development (“HCD”) and Capital Markets. Our Single-Family segment generates revenue
primarily from the guaranty fees on the mortgage loans underlying guaranteed single-family Fannie Mae
mortgage-backed securities (“Fannie Mae MBS”). Our HCD segment generates revenue from a variety of
sources, including guaranty fees on the mortgage loans underlying multifamily Fannie Mae MBS and on the
multifamily mortgage loans held in our portfolio, transaction fees associated with the multifamily business and
bond credit enhancement fees. In addition, HCD investments in rental housing projects eligible for the federal
low-income housing tax credit (“LIHTC”) generate both tax credits and net operating losses. As described in
“Note 12, Income Taxes,” we determined that it is more likely than not that we will not realize a portion of
our deferred tax assets in the future. As a result, we are recognizing only a small amount of tax benefits
associated with tax credits and net operating losses in our consolidated financial statements. Other investments
in affordable rental and for-sale housing generate revenue and losses from operations and the eventual sale of
the assets. Our Capital Markets segment invests in mortgage loans, mortgage-related securities and other
investments, and generates income primarily from the difference, or spread, between the yield on the mortgage
assets we own and the interest we pay on the debt we issue in the global capital markets to fund the purchases
of these mortgage assets. Changes in the fair value of the derivative instruments and trading securities and the
impairments on available-for-sale securities also affect the net income of our Capital Markets segment.
On September 7, 2008, the Secretary of the Treasury and the Director of FHFA announced several actions
taken by Treasury and FHFA regarding Fannie Mae, which included: (1) placing us in conservatorship; (2) the
execution of a senior preferred stock purchase agreement by our conservator, on our behalf, and Treasury,
pursuant to which we issued to Treasury both senior preferred stock and a warrant to purchase common stock;
and (3) Treasury’s agreement to establish a temporary secured lending credit facility that is available to us and
the other GSEs regulated by FHFA under identical terms. We entered into a lending agreement with Treasury
pursuant to which Treasury established this secured lending credit facility on September 19, 2008.
Conservatorship
On September 6, 2008, at the request of the Secretary of the Treasury, the Chairman of the Board of
Governors of the Federal Reserve and the Director of FHFA, our Board of Directors adopted a resolution
consenting to putting the company into conservatorship. After obtaining this consent, the Director of FHFA
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