Fannie Mae 2009 Annual Report Download - page 57

Our business activities are significantly restricted by the conservatorship and the senior preferred stock
purchase agreement.
We are currently under the control of our conservator, FHFA, and we do not know when or how the
conservatorship will be terminated. Under the GSE Act, FHFA can direct us to enter into contracts or enter
into contracts on our behalf. Further, FHFA, as conservator, generally has the power to transfer or sell any of
our assets or liabilities and may do so without the approval, assignment or consent of any party. In addition,
our directors do not have any duties to any person or entity except to the conservator. Accordingly, our
directors are not obligated to consider the interests of the company, the holders of our equity or debt securities
or the holders of Fannie Mae MBS in making or approving a decision unless specifically directed to do so by
the conservator.
The conservator said in February 2010 that while we are in conservatorship, we will be limited to continuing
our existing core business activities and taking actions necessary to advance the goals of the conservatorship.
The senior preferred stock purchase agreement with Treasury includes a number of covenants that significantly
restrict our business activities. We cannot, without the prior written consent of Treasury: pay dividends (except
on the senior preferred stock); sell, issue, purchase or redeem Fannie Mae equity securities; sell, transfer, lease
or otherwise dispose of assets in specified situations; engage in transactions with affiliates other than on arm’s-
length terms or in the ordinary course of business; issue subordinated debt; or incur indebtedness that would
result in our aggregate indebtedness exceeding 120% of the amount of mortgage assets we are allowed to own.
In deciding whether or not to consent to any request for approval it receives from us under the agreement,
Treasury has the right to withhold its consent for any reason and is not required by the agreement to consider
any particular factors, including whether or not management believes that the transaction would benefit the
company. Pursuant to the senior preferred stock purchase agreement, the maximum allowable amount of
mortgage assets we may own on December 31, 2010 is $810 billion. On December 31, 2011, and each
December 31 thereafter, our mortgage assets may not exceed 90% of the maximum allowable amount that we
were permitted to own as of December 31 of the immediately preceding calendar year. The maximum
allowable amount is reduced annually until it reaches $250 billion. This limit on the amount of mortgage
assets we are permitted to hold could constrain the amount of delinquent loans we purchase from single-
family MBS trusts. Please see “Business—Mortgage Securitizations—Purchases of Loans from our MBS
Trusts” for more information about these planned purchases.
We discuss the powers of the conservator, the terms of the senior preferred stock purchase agreement, and
their impact on us and shareholders in “Business—Conservatorship and Treasury Agreements.” These factors
may adversely affect our business, results of operations, financial condition, liquidity and net worth.
The conservatorship and investment by Treasury have had, and will continue to have, a material adverse
effect on our common and preferred shareholders.
No voting rights during conservatorship. The rights and powers of our shareholders are suspended during the
conservatorship. The conservatorship has no specified termination date. During the conservatorship, our
common shareholders do not have the ability to elect directors or to vote on other matters unless the
conservator delegates this authority to them.
Dividends to common and preferred shareholders, other than to Treasury, have been eliminated. Under the
terms of the senior preferred stock purchase agreement, dividends may not be paid to common or preferred
shareholders (other than the senior preferred stock) without the consent of Treasury, regardless of whether we
are in conservatorship.
Liquidation preference of senior preferred stock will increase, likely substantially. The senior preferred stock
ranks prior to our common stock and all other series of our preferred stock, as well as any capital stock we
issue in the future, as to both dividends and distributions upon liquidation. Accordingly, if we are liquidated,
the senior preferred stock is entitled to its then-current liquidation preference, plus any accrued but unpaid
dividends, before any distribution is made to the holders of our common stock or other preferred stock. As of
December 31, 2009, the liquidation preference on the senior preferred stock was $60.9 billion; however, it will
increase to $76.2 billion when Treasury provides the additional $15.3 billion FHFA has already requested on
52