Fannie Mae 2009 Annual Report Download - page 58

our behalf. The liquidation preference could increase substantially as we draw on Treasury’s funding
commitment, if we do not pay dividends owed on the senior preferred stock or if we do not pay the quarterly
commitment fee under the senior preferred stock purchase agreement. If we are liquidated, it is highly
uncertain that there would be sufficient funds remaining after payment of amounts to our creditors and to
Treasury as holder of the senior preferred stock to make any distribution to holders of our common stock and
other preferred stock.
Exercise of the Treasury warrant would substantially dilute investment of current shareholders. If Treasury
exercises its warrant to purchase shares of our common stock equal to 79.9% of the total number of shares of
our common stock outstanding on a fully diluted basis, the ownership interest in the company of our then
existing common shareholders will be substantially diluted, and we would thereafter have a controlling
shareholder.
No longer managed for the benefit of shareholders. Because we are in conservatorship, we are no longer
managed with a strategy to maximize shareholder returns.
We do not know when or how the conservatorship will be terminated, and if or when the rights and powers of
our shareholders, including the voting powers of our common shareholders, will be restored. Moreover, even if
the conservatorship is terminated, by their terms, we remain subject to the senior preferred stock purchase
agreement, senior preferred stock and warrant, which can only be cancelled or modified by mutual consent of
Treasury and the conservator. For a description of additional restrictions on and risks to our shareholders, see
“Business—Conservatorship and Treasury Agreements.”
Efforts we are required or asked to take by FHFA, other government agencies or Congress in pursuit of
providing liquidity, stability and affordability to the mortgage market and providing assistance to struggling
homeowners, or in pursuit of other goals, may adversely affect our business, results of operations, financial
condition, liquidity and net worth.
Prior to the conservatorship, our business was managed with a strategy to maximize shareholder returns, while
fulfilling our mission. In this time of economic uncertainty, our conservator has directed us to focus primarily
on fulfilling our mission of providing liquidity, stability and affordability to the mortgage market and
minimizing our credit losses from delinquent mortgages, and providing assistance to struggling homeowners to
help them remain in their homes. As a result, we may continue to take a variety of actions designed to address
this focus that could adversely affect our economic returns, possibly significantly, such as: reducing our
guaranty fees and modifying loans to extend the maturity, lower the interest rate or defer or forgive principal
owed by the borrower. These activities may have short- and long-term adverse effects on our business, results
of operations, financial condition, liquidity and net worth. Other agencies of the U.S. government or Congress
also may ask us to undertake significant efforts to support the housing and mortgage markets, as well as
struggling homeowners. For example, under the Administration’s Making Home Affordable Program, we are
offering HAMP. We have incurred substantial costs in connection with the program, as we discuss in
“MD&A—Consolidated Results of Operations—Financial Impact of the Making Home Affordable Program on
Fannie Mae.”
During 2009, we were subject to housing goals that required that a specified portion of our mortgage
purchases relate to the purchase or securitization of mortgage loans that finance housing for low- and
moderate-income households, housing in underserved areas and qualified housing under the definition of
special affordable housing. Market conditions during 2009 resulted in the origination of fewer goals-qualifying
mortgages, which negatively affected our ability to meet our goals. These conditions include: tighter
underwriting and eligibility standards; the sharply increased standards of private mortgage insurers; high
unemployment; the increased role of FHA in acquiring goals-qualifying mortgage loans; the collapse of the
private-label mortgage-related securities market; multifamily market volatility; and the prospect of high levels
of refinancings. These conditions are likely to continue in 2010. On February 17, 2010, the FHFA announced
a proposed rule implementing the new housing goals structure for 2010 and 2011 as required by the 2008
Reform Act. The new housing goals structure establishes goals for the purchase of purchase money mortgages
backed by single-family, owner-occupied properties affordable to low-income families, very low-income
families, and families in low-income areas. The proposed rule also establishes goals for the purchase of
53