Fannie Mae 2010 Annual Report Download - page 11

2010, we continued our work to strengthen our book of business, acquiring loans with a strong overall credit
profile. We discuss the performance of single-family loans we acquired in 2009 and 2010 later in this
executive summary.
We will continue to need funds from Treasury as a result of ongoing adverse conditions in the housing and
mortgage markets, the deteriorated credit performance of loans in our mortgage credit book of business that
we acquired prior to 2009, the costs associated with our efforts pursuant to our mission, and the dividends we
are required to pay Treasury on the senior preferred stock. As a result of these factors, we do not expect to
earn profits in excess of our annual dividend obligation to Treasury for the indefinite future. Further, there is
significant uncertainty regarding the future of our company, as the Administration, Congress and our regulators
consider options for the future state of Fannie Mae, Freddie Mac and the U.S. government’s role in residential
mortgage finance.
On February 11, 2011, Treasury and HUD released a report to Congress on reforming America’s housing
finance market. The report provides that the Administration will work with FHFA to determine the best way to
responsibly reduce Fannie Mae’s and Freddie Mac’s role in the market and ultimately wind down both
institutions. The report emphasizes the importance of proceeding with a careful transition plan and providing
the necessary financial support to Fannie Mae and Freddie Mac during the transition period. We discuss the
report’s recommendations for a new long-term structure for the housing finance system in more detail in
“Legislation and GSE Reform—GSE Reform.”
In the final quarter of 2010 we initiated a comprehensive review of our business processes, infrastructure and
organizational structure to assess the company’s readiness to operate effectively in the secondary mortgage
market of the future. We expect to implement the plan in phases with goals of providing value to our
customers, simplifying and standardizing our operating model, and reducing our costs.
To provide context for analyzing our consolidated financial statements and understanding our MD&A, we
discuss the following topics in this executive summary:
• Our 2010 financial performance;
• Actions we take to provide liquidity to the mortgage market;
• Our expectations regarding profitability, the book of business we have acquired since the beginning of
2009 and credit losses;
• Our strategies and actions to reduce credit losses;
• Our 2009 and 2010 credit performance;
• The servicer foreclosure process deficiencies discovered in 2010 and the related foreclosure pause;
• Our liquidity position; and
• Our outlook.
Summary of Our Financial Performance for 2010
Our financial results for 2010 reflect the continued weakness in the housing and mortgage markets, which
remain under pressure from high levels of unemployment and underemployment, and the impact of the
adoption of new accounting standards and the consolidation of the majority of our MBS trusts.
Effective January 1, 2010, we prospectively adopted new accounting standards on the transfers of financial
assets and the consolidation of variable interest entities. We refer to these accounting standards together as the
“new accounting standards.” In this report, we also refer to January 1, 2010 as the “transition date.”
Our adoption of the new accounting standards had a major impact on the presentation of our consolidated
financial statements. The new standards require that we consolidate the substantial majority of Fannie Mae
MBS trusts we guarantee and recognize the underlying assets (typically mortgage loans) and debt (typically
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