Fannie Mae 2009 Annual Report Download - page 67

If we were to receive notice from the NYSE that we failed to satisfy the average minimum closing price
requirement for our common stock, our conservator would be involved in any decision made on whether or
not we submit a plan to the NYSE to cure this deficiency. Our conservator could decline to permit any such
submission, which would result in the NYSE initiating suspension and delisting procedures. Our conservator
would be involved in any decision regarding the continued listing of our common and preferred stock on the
NYSE. For example, our conservator could direct us to voluntarily delist our common and preferred stock
from the NYSE.
If our common and preferred stock were to be delisted from the NYSE, it likely would result in a significant
decline in the trading volume and liquidity of both our common stock and the classes of our preferred stock
listed on the NYSE. As a result, it could become more difficult for our shareholders to sell their shares at
prices comparable to those in effect prior to delisting, or at all.
Mortgage fraud could result in significant financial losses and harm to our reputation.
We use a process of delegated underwriting in which lenders make specific representations and warranties
about the characteristics of the single-family mortgage loans we purchase and securitize. As a result, we do
not independently verify most borrower information that is provided to us. This exposes us to the risk that one
or more of the parties involved in a transaction (the borrower, seller, broker, appraiser, title agent, lender or
servicer) will engage in fraud by misrepresenting facts about a mortgage loan. We have experienced financial
losses resulting from mortgage fraud, including institutional fraud perpetrated by counterparties. In the future,
we may experience additional financial losses and reputational damage as a result of mortgage fraud.
RISKS RELATING TO OUR INDUSTRY
A continuing, or broader, decline in U.S. home prices or activity in the U.S. housing market would likely
cause higher credit losses and credit-related expenses, and lower business volumes.
We expect weakness in the real estate financial markets to continue into 2010. The continued deterioration in
the performance of outstanding mortgages will result in the foreclosure of some troubled loans, which is likely
to add to excess inventory. We also expect heightened default and severity rates to continue during this period,
and home prices, particularly in some geographic areas, may decline further. Any resulting increase in
delinquencies or defaults, or in severity, will result in a higher level of credit losses and credit-related
expenses, which in turn will reduce our earnings and adversely affect our net worth and financial condition.
Our business volume is affected by the rate of growth in total U.S. residential mortgage debt outstanding and
the size of the U.S. residential mortgage market. The rate of growth in total U.S. residential mortgage debt
outstanding has declined substantially in response to the reduced activity in the housing market and declines in
home prices, and we expect single-family mortgage debt outstanding to decrease by 1.7% in 2010. A decline
in the rate of growth in mortgage debt outstanding reduces the unpaid principal balance of mortgage loans
available for us to purchase or securitize, which in turn could reduce our net interest income and guaranty fee
income. Even if we are able to increase our share of the secondary mortgage market, it may not be sufficient
to make up for the decline in the rate of growth in mortgage originations, which could adversely affect our
results of operations and financial condition.
Structural and regulatory changes in the financial services industry may negatively impact our business.
The financial services industry is undergoing significant structural changes. In light of current conditions in
the financial markets and economy, regulators and legislatures have increased their focus on the regulation of
the financial services industry. The Obama Administration issued a white paper in June 2009 that proposes
significantly altering the current regulatory framework applicable to the financial services industry, with
enhanced and more comprehensive regulation of financial firms and markets. That announcement was
followed by proposed legislation submitted to Congress by the Department of the Treasury. The proposed
legislation included proposals relating to the promotion of robust supervision and regulation of financial firms,
stronger consumer protection regulations, the enhanced regulation of securitization markets, changes to
existing capital and liquidity requirements for financial firms, additional regulation of the over-the-counter
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