Fannie Mae 2008 Annual Report Download - page 39

Regulatory Reform Act
The Regulatory Reform Act was signed into law on July 30, 2008, and became effective immediately. This
legislation provided FHFA with safety and soundness authority that is stronger than the authority that was
available to OFHEO, and that is comparable to and in some respects broader than that of the federal banking
agencies. The legislation gave FHFA the authority, even if we had not been placed into conservatorship, to
raise capital levels above statutory minimum levels, regulate the size and content of our portfolio, and approve
new mortgage products. The legislation also gave FHFA the authority to place the GSEs into conservatorship
or receivership under conditions set forth in the statute. We expect that FHFA will continue to implement the
various provisions of the legislation over the next several months. In general, we remain subject to regulations,
orders and determinations that existed prior to the enactment of the Regulatory Reform Act until new ones are
issued or made. Below are some key provisions of the Regulatory Reform Act.
Safety and Soundness Provisions
Conservatorship and Receivership. The legislation gave FHFA enhanced authority to place us into
conservatorship, based on certain specified grounds. Pursuant to this authority, FHFA placed us into
conservatorship on September 6, 2008. The legislation also gave FHFA new authority to place us into
receivership at the discretion of the Director of FHFA, based on certain specified grounds, at any time,
including directly from conservatorship. Further, FHFA must place us into receivership if it determines that
our liabilities have exceeded our assets for 60 days, or we have not been paying our debts as they become due
for 60 days.
Capital. FHFA has broad authority to establish risk-based capital standards to ensure that we operate in a
safe and sound manner and maintain sufficient capital and reserves. FHFA also has broad authority to increase
the level of our required minimum capital and to establish capital or reserve requirements for specific products
and activities, so as to ensure that we operate in a safe and sound manner. On October 9, 2008, FHFA
announced that our capital requirements will not be binding during the conservatorship. We describe our
capital requirements below under “Capital Adequacy Requirements.” Pursuant to its new authority under the
Regulatory Reform Act, FHFA has announced that it will be revising our minimum capital and risk-based
capital requirements.
Portfolio. FHFA is required to establish standards governing our portfolio holdings, to ensure that they are
backed by sufficient capital and consistent with our mission and safe and sound operations. FHFA is also
required to monitor our portfolio and, in some circumstances, may require us to dispose of or acquire assets.
On January 30, 2009, FHFA published an interim final rule adopting, as the standard for our portfolio
holdings, the portfolio cap established by the senior preferred stock purchase agreement described under
“Treasury Agreements—Covenants under Treasury Agreements,” as it may be amended from time to time.
The interim final rule is effective for as long as we remain subject to the terms and obligations of the senior
preferred stock purchase agreement.
Prompt Corrective Action. FHFA has prompt corrective action authority, including the discretionary authority
to change our capital classification under certain circumstances and to restrict our growth and activities if we
are not adequately capitalized.
Enforcement Powers. FHFA has enforcement powers, including cease-and-desist authority, authority to
impose civil monetary penalties, and authority to suspend or remove directors and management.
Mission Provisions
Products and Activities. We are required, with some exceptions, to obtain the approval of FHFA before we
initially offer a product. The process for obtaining FHFA’s approval includes a 30-day public notice and
comment period relating to the product. A product may be approved only if it is authorized by our charter, in
the public interest, and consistent with the safety and soundness of the enterprise and the mortgage finance
system. We must provide written notice to FHFA before commencing any new activity.
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