Fannie Mae 2008 Annual Report Download - page 60

disclosures that are not complete or accurate, which could have a material adverse effect on our business and
operations.
One of these material weaknesses relates specifically to the impact of the conservatorship on our disclosure
controls and procedures. Because we are under the control of FHFA, some of the information that we may
need to meet our disclosure obligations may be solely within the knowledge of FHFA. As our conservator,
FHFA has the power to take actions without our knowledge that could be material to our shareholders and
other stakeholders, and could significantly affect our financial performance or our continued existence as an
ongoing business. Because FHFA currently functions as both our regulator and our conservator, there are
inherent structural limitations on our ability to design, implement, test or operate effective disclosure controls
and procedures relating to information within FHFA’s knowledge. As a result, we have not been able to update
our disclosure controls and procedures in a manner that adequately ensures the accumulation and
communication to management of information known to FHFA that is needed to meet our disclosure
obligations under the federal securities laws, including disclosures affecting our financial statements. Given the
structural nature of this material weakness, it is likely that we will not remediate this weakness while we are
under conservatorship.
Noncompliance with NYSE rules could result in the delisting of our common and preferred stock from
the NYSE.
We received notice from the NYSE on November 12, 2008 that we failed to satisfy one of the NYSE’s
standards for continued listing of our common stock because the average closing price of our common stock
during the 30 consecutive trading days ended November 12, 2008 had been less than $1.00 per share. Under
applicable NYSE rules, we now have until May 11, 2009, subject to supervision by the NYSE, to bring our
share price as of May 11, 2009 and our average share price for the 30 consecutive trading days preceding
May 11, 2009, above $1.00. If we fail to do so, the NYSE rules provide that the NYSE will initiate
suspension and delisting procedures. We have advised the NYSE that we intend to cure this deficiency by
May 11, 2009, and that, subject to the approval of Treasury, we might undertake a reverse stock split.
However, a reverse stock split, or other action, may not be sufficient to cure this deficiency.
If the NYSE were to delist our common and preferred stock, it likely would result in a significant decline in
the trading volume and liquidity of our common stock and of the classes of our preferred stock listed on the
NYSE. We also expect that the suspension and delisting of our common stock would lead to decreases in
analyst coverage and market-making activity relating to our common stock, as well as reduced information
about trading prices and volume. As a result, it could become significantly more difficult for our shareholders
to sell their shares at prices comparable to those in effect prior to delisting or at all.
We may experience further losses and write-downs relating to our investment securities, which could
materially adversely affect our business, results of operations, financial condition, liquidity and net worth.
We experienced a significant increase in losses and write-downs relating to our investment securities in 2008,
as well as credit rating downgrades relating to these securities. A substantial portion of these losses and write-
downs related to our investments in private-label mortgage-related securities backed by Alt-A and subprime
mortgage loans and CMBS. Due to the continued deterioration in home prices and continued increases in
mortgage loan delinquencies, defaults and credit losses in the subprime and Alt-A sectors, we expect to incur
further losses on our investments in private-label mortgage-related securities, including on those that continue
to be AAA-rated. See “Part II—Item 7—MD&A—Consolidated Balance Sheet Analysis—Trading and
Available-for-Sale Investment Securities—Investments in Private-Label Mortgage-Related Securities” for
detailed information on our investments in private-label securities backed by Alt-A and subprime loans.
We also incurred significant losses during the second half of 2008 relating to the non-mortgage investment
securities in our cash and other investments portfolio, primarily as a result of a substantial decline in the
market value of these assets due to the financial market crisis. The fair value of the investment securities we
hold may be further adversely affected by continued deterioration in the housing and financial markets,
additional ratings downgrades or other events. Further losses and write-downs relating to our investment
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