Fannie Mae 2008 Annual Report Download - page 289

is depleted at which time dividends will be recorded as an increase to accumulated deficit. As of
December 31, 2008, the aggregate liquidation preference of the senior preferred stock was $1.0 billion. The
Director of FHFA has submitted a request for $15.2 billion from Treasury on our behalf under the terms of the
senior preferred stock purchase agreement. Upon receipt of these funds, the aggregate liquidation preference of
the senior preferred stock will increase to $16.2 billion. The consideration exchanged for Treasury’s
commitment has been recorded as a reduction to APIC on the date of issuance.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”).
We are currently in conservatorship, with FHFA acting as our conservator. As conservator, FHFA succeeded to
all rights, titles, powers and privileges of the company and of any shareholder, officer or directors of the
company with respect to the company and its assets. As a result, we are currently under the control of our
conservator. FHFA, in its role as conservator, has overall management authority over our business.
We receive, directly and indirectly, substantial support from various agencies of the United States Government,
including the Federal Reserve, U.S. Treasury Department, and FHFA, as our conservator and regulator. The
Company is dependent upon the continued support of the U.S. Government and these agencies in order to
maintain a positive net worth, avoid being placed into receivership, and continue to access the debt markets.
Based on consideration of all the relevant conditions and events affecting our operations, including our
dependence on the U.S. Government, we continue to operate as a going concern and in accordance with our
delegation of authority.
The conservatorship has no specified termination date and the future structure of our business following
termination of the conservatorship is uncertain. We do not know when or how the conservatorship will be
terminated or what changes to our business structure will be made during or following the termination of the
conservatorship. We do not know whether we will exist in the same or a similar form or continue to conduct
our business as we did before the conservatorship, or whether the conservatorship will end in receivership.
Under the Regulatory Reform Act, FHFA must place us into receivership if the Director of FHFA makes a
written determination that our assets are less than our obligations or if we have not been paying our debts, in
either case, for a period of 60 days. In addition, we could be put in receivership at the discretion of the
Director of FHFA at any time for other reasons, including conditions that FHFA has already asserted existed at
the time the Director of FHFA placed us into conservatorship. Placement into receivership would have a
material adverse effect on holders of our common stock, preferred stock, debt securities and Fannie Mae
MBS. Should we be placed in receivership, different assumptions would be required to determine the carrying
value of our assets, which could lead to substantially different financial results.
During the second half of 2008, we began to experience significant deterioration in our access to the
unsecured debt markets, particularly for long-term and callable debt, and in the yields on our debt as
compared with relevant market benchmarks. These conditions, which became especially pronounced in
October and November 2008, have had, and are continuing to have, adverse effects on our business and results
of operations. Several factors contributed to the reduced demand for our debt securities, including continued
severe market disruptions, market concerns about our capital position and the future of our business (including
its future profitability, future structure, regulatory actions and agency status) and the extent of
U.S. government support for our business.
On November 25, 2008, the Federal Reserve announced that it would purchase up to $100 billion in direct
obligations of the GSEs and up to $500 billion in fixed-rate MBS guaranteed by any of the GSEs by the end
F-11
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)