Fannie Mae 2010 Annual Report Download - page 369

on 0.45% of the unpaid principal balance and critical capital based on 0.25% of the unpaid principal balance,
notwithstanding our transition date adoption of the new accounting standards, and (2) issued a regulatory
interpretation stating that our minimum capital requirements are not automatically affected by the new
accounting standards. Additionally, our minimum capital deficiency excludes the funds provided to us by
Treasury pursuant to the senior preferred stock purchase agreement, as the senior preferred stock does not
qualify as core capital due to its cumulative dividend provisions.
Pursuant to the GSE Act, if our total assets are less than our total obligations (a net worth deficit) for a period
of 60 days, FHFA is mandated by law to appoint a receiver for Fannie Mae. Treasury’s funding commitment
under the senior preferred stock purchase agreement is intended to ensure that we avoid a net worth deficit, in
order to avoid this mandatory trigger of receivership. In order to avoid a net worth deficit, our conservator
may request funds on our behalf from Treasury under the senior preferred stock purchase agreement.
FHFA has directed us, during the time we are under conservatorship, to focus on managing to a positive net
worth. As of December 31, 2010 and 2009, we had a net worth deficit of $2.5 billion and $15.3 billion,
respectively.
The following table displays our regulatory capital classification measures as of December 31, 2010 and 2009.
2010
(1)
2009
(1)
As of December 31,
(Dollars in millions)
Core capital
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (89,516) $ (74,540)
Statutory minimum capital requirement
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,676 33,057
Deficit of core capital over statutory minimum capital requirement . . . . . . . . . . . . . . . $(123,192) $(107,597)
Deficit of core capital percentage over statutory minimum capital requirement . . . . . . . (366)% (325)%
(1)
Amounts as of December 31, 2010 and 2009 represent estimates that have been submitted to FHFA. As noted above,
FHFA is not issuing capital classifications during conservatorship.
(2)
The sum of (a) the stated value of our outstanding common stock (common stock less treasury stock); (b) the stated
value of our outstanding non-cumulative perpetual preferred stock; (c) our paid-in capital; and (d) our retained
earnings (accumulated deficit). Core capital does not include: (a) accumulated other comprehensive income (loss) or
(b) senior preferred stock.
(3)
Generally, the sum of (a) 2.50% of on-balance sheet assets, except those underlying Fannie Mae MBS held by third
parties; (b) 0.45% of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and (c) up to
0.45% of other off-balance sheet obligations, which may be adjusted by the Director of FHFA under certain
circumstances (See 12 CFR 1750.4 for existing adjustments made by the Director).
Our critical capital requirement is generally equal to the sum of: (1) 1.25% of on-balance sheet assets;
(2) 0.25% of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and
(3) 0.25% of other off-balance sheet obligations, which may be adjusted by the Director of FHFA under
certain circumstances.
Restrictions on Capital Distributions and Dividends
Under the terms of the senior preferred stock purchase agreement, we are required to comply with certain
restrictions and covenants. Set forth below are additional restrictions related to our capital requirements:
Restrictions Under GSE Act. Under the GSE Act, FHFA has the authority to prohibit capital distributions,
including payment of dividends, if we fail to meet our capital requirements. If FHFA classifies us as
significantly undercapitalized, we must obtain the approval of the Director of FHFA for any dividend payment.
Under the GSE Act, we are not permitted to make a capital distribution if, after making the distribution, we
would be undercapitalized. The Director of FHFA, however, may permit us to repurchase shares if the
F-111
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)