Fannie Mae 2009 Annual Report Download - page 267

FHFA, in its role as conservator, has overall management authority over our business. The conservator has
since delegated specified authorities to our Board of Directors and has delegated to management the authority
to conduct our day-to-day operations. The conservator retains the authority to withdraw its delegations at any
time.
As of February 26, 2010, the conservator has advised us that it has not disaffirmed or repudiated any contracts
we entered into prior to its appointment as conservator. The GSE Act requires FHFA to exercise its right to
disaffirm or repudiate most contracts within a reasonable period of time after its appointment as conservator.
The conservator has the power to transfer or sell any asset or liability of Fannie Mae (subject to limitations
and post-transfer notice provisions for transfers of qualified financial contracts) without any approval,
assignment of rights or consent of any party. The GSE Act, however, provides that mortgage loans and
mortgage-related assets that have been transferred to a Fannie Mae MBS trust must be held by the conservator
for the beneficial owners of the Fannie Mae MBS and cannot be used to satisfy the general creditors of the
company. As of February 26, 2010, FHFA has not exercised this power.
Neither the conservatorship nor the terms of our agreements with Treasury changes our obligation to make
required payments on our debt securities or perform under our mortgage guaranty obligations.
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 GSE Act, FHFA must place us into receivership if the Director of FHFA makes a written
determination that our assets are less than our obligations (i.e., we have a net worth deficit) or if we have not
been paying our debts, in either case, for a period of 60 days. In addition, the Director of FHFA may place us
in receivership at his discretion 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 into receivership, different assumptions would be required to
determine the carrying value of our assets, which could lead to substantially different financial results.
Senior Preferred Stock and Warrant Issued to Treasury
On September 7, 2008, we, through FHFA in its capacity as conservator, entered into a senior preferred stock
purchase agreement with Treasury. The agreement was amended on September 26, 2008, May 6, 2009 and
December 24, 2009. Pursuant to the amended senior preferred stock purchase agreement, Treasury has
committed to provide us with funding as needed to help us maintain a positive net worth thereby avoiding the
mandatory receivership trigger described above. Treasury’s maximum funding commitment to us under the
agreement is the greater of (a) $200 billion or (b) $200 billion plus the cumulative amount of our net worth
deficit (the amount by which our total liabilities exceed our total assets) as of the end of any and each
calendar quarter in 2010, 2011 and 2012, less any positive net worth as of December 31, 2012. As
consideration for Treasury’s funding commitment, we issued one million shares of senior preferred stock and a
warrant to purchase shares of our common stock to Treasury. We also have agreed to pay Treasury a quarterly
commitment fee beginning on March 31, 2011. Treasury, as holder of the senior preferred stock, is entitled to
receive, when, as and if declared by our Board of Directors, out of legally available funds, cumulative
quarterly cash dividends at the annual rate of 10% per year on the then-current liquidation preference of the
senior preferred stock, which was initially $1.0 billion but is subject to adjustment for amounts Treasury pays
to us pursuant to its funding commitment, as well as any dividends that are not paid in cash for any dividend
period and any commitment fees that are not paid in cash to Treasury or waived by Treasury. If at any time
F-9
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)