Fannie Mae 2009 Annual Report Download - page 54

RISKS RELATING TO OUR BUSINESS
The future of our company following termination of the conservatorship and the timing of the
conservatorship’s end are 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 continue to exist in the same or a similar form after conservatorship is terminated or whether the
conservatorship will end in receivership or in some other manner. The Obama Administration’s June 2009
white paper on financial regulatory reform stated that Treasury and HUD, in consultation with other
government agencies, would engage in a wide-ranging initiative to develop recommendations on the future of
the GSEs. On December 24, 2009, in announcing amendments to its senior preferred stock purchase
agreements with Fannie Mae and Freddie Mac, Treasury announced that it expected to provide a preliminary
report about longer term reform of the federal government’s role in the housing market around the time
President Obama released his fiscal 2011 budget. Treasury observed, “Recent announcements on the tightening
of underwriting standards by Fannie Mae, Freddie Mac, and FHA, demonstrate a commitment to prudent
housing finance policy that enables a transition to an environment where the private market is able to provide
a larger source of mortgage finance.” In February 2010, the Administration stated that it continues to monitor
the situation of the GSEs, and indicated that it would release a statement on the GSEs “in the very near
future.” Since June 2009, Congressional committees and subcommittees have held hearings to discuss the
present condition and future status of Fannie Mae and Freddie Mac and at least one legislative proposal
addressing the future status of the GSEs has been offered. We cannot predict the prospects for the enactment,
timing or content of legislative proposals regarding the future status of the GSEs. See “Business—GSE
Reform and Pending Legislation” for more information about the white paper’s mention of options for reform
of the GSEs and Congressional hearings about our present condition and future status.
Accordingly, there continues to be uncertainty regarding the future of Fannie Mae, including whether we will
continue to exist in our current form after conservatorship is terminated. The options for reform of the GSEs
include options that would result in a substantial change to our business structure or in Fannie Mae’s
liquidation or dissolution.
We expect FHFA to request additional funds from Treasury on our behalf to ensure we maintain a positive
net worth and avoid mandatory receivership. The dividends and commitment fees we must pay or that
accrue on Treasury’s investments are substantial and are expected to increase, and we likely will not be able
to fund them through net income.
FHFA must place us into receivership if the Director of FHFA makes a written determination that our assets
are less than our obligations (which we refer to as a net worth deficit) or if we have not been paying our
debts, in either case, for a period of 60 days. We have had a net worth deficit as of the end of each of the last
five fiscal quarters, including as of December 31, 2009. Treasury provided us with funds under the senior
preferred stock purchase agreement to cure the net worth deficits in prior periods before the end of the 60-day
period, and we expect Treasury to do the same with respect to the December 31, 2009 deficit. When Treasury
provides the additional $15.3 billion FHFA has already requested on our behalf, the aggregate liquidation
preference on the senior preferred stock will be $76.2 billion, and will require an annualized dividend of
$7.6 billion. The prospective $7.6 billion annual dividend obligation exceeds our reported annual net income
for all but one of the last eight years. Our ability to maintain a positive net worth has been and continues to
be adversely affected by market conditions. To the extent we have a negative net worth as of the end of future
fiscal quarters, we expect that FHFA will request additional funds from Treasury under the senior preferred
stock purchase agreement. Further funds from Treasury under the senior preferred stock purchase agreement
will substantially increase the liquidation preference of and the dividends we owe on the senior preferred stock
and, therefore, we may need additional funds from Treasury in order to meet our dividend obligation.
In addition, beginning in 2011, the senior preferred stock purchase agreement requires that we pay a quarterly
commitment fee to Treasury, unless Treasury waives this fee. The quarterly commitment fee amounts have not
yet been determined. The aggregate liquidation preference and dividend obligations will also increase by the
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