Fannie Mae 2009 Annual Report Download - page 41

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.
Products and Activities. The GSE Act requires that, with some exceptions, we must obtain FHFA’s approval
before initially offering a product and provide FHFA written notice before commencing a new activity. In July
2009, FHFA published an interim final rule implementing this provision. In a letter to Congress dated
February 2, 2010, the Acting Director of FHFA announced that FHFA was instructing Fannie Mae and Freddie
Mac not to submit requests for approval of new products under the interim final rule. The letter stated that
“permitting the Enterprises to engage in new products is inconsistent with the goals of conservatorship,” and
concluded, “the Enterprises will be limited to continuing their existing core business activities and taking
actions necessary to advance the goals of the conservatorship.”
Conservatorship and Receivership. FHFA has authority to place us into conservatorship, based on certain
specified grounds. Pursuant to this authority, FHFA placed us into conservatorship on September 6, 2008.
FHFA also has 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.
Affordable Housing Allocations. We are required to make annual allocations to fund government affordable
housing programs, based on the dollar amount of our total new business purchases, at the rate of 4.2 basis
points per dollar. FHFA must issue regulations prohibiting us from redirecting the cost of our allocations,
through increased charges or fees, or decreased premiums, or in any other manner, to the originators of
mortgages that we purchase or securitize. FHFA shall temporarily suspend our allocation upon finding that it
is contributing or would contribute to our financial instability; is causing or would cause us to be classified as
undercapitalized; or is preventing or would prevent us from successfully completing a capital restoration plan.
On November 13, 2008, we received notice from FHFA that it was suspending our allocation until further
notice.
Affordable Housing Goals and Duty to Serve. We discuss our affordable housing goals and our new duty to
serve underserved markets below under “Housing Goals and Subgoals and Duty to Serve Underserved
Markets.”
Executive Compensation. The GSE Act directs FHFA to prohibit us from providing unreasonable or non-
comparable compensation to our executive officers. FHFA may at any time review the reasonableness and
comparability of an executive officer’s compensation and may require us to withhold any payment to the
officer during such review.
FHFA is also authorized to prohibit or limit certain golden parachute and indemnification payments to
directors, officers, and certain other parties. In January 2009, FHFA issued final regulations relating to golden
parachute payments, under which FHFA may limit golden parachute payments as defined, and that set forth
factors to be considered by the Director of FHFA in acting upon his authority to limit these payments.
Capital Adequacy Requirements
The GSE Act establishes capital adequacy requirements. The statutory capital framework incorporates two
different quantitative assessments of capital—a minimum capital requirement and a risk-based capital
requirement. The minimum capital requirement is ratio-based, while the risk-based capital requirement is
based on simulated stress test performance. The GSE Act requires us to maintain sufficient capital to meet
both of these requirements in order to be classified as “adequately capitalized.” On October 9, 2008, however,
FHFA announced that our existing statutory and FHFA-directed regulatory capital requirements will not be
binding during the conservatorship. FHFA has directed us, during the time we are under conservatorship, to
focus on managing to a positive net worth, provided that it is not inconsistent with our mission objectives.
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