Fannie Mae 2010 Annual Report Download - page 37

We describe the interest rate risk management process employed by our Capital Markets group, including its
key strategies in managing interest rate risk and key metrics used in measuring and evaluating our interest rate
risk in “MD&A—Risk Management—Market Risk Management, Including Interest Rate Risk.”
Investment and Financing Activities
Our Capital Markets group seeks to increase the liquidity of the mortgage market by maintaining a presence
as an active investor in mortgage loans and mortgage-related securities and, in particular, supports the liquidity
and value of Fannie Mae MBS in a variety of market conditions.
Our Capital Markets group funds its investments primarily through the issuance of a variety of debt securities
in a wide range of maturities in the domestic and international capital markets. The most active investors in
our debt securities include commercial bank portfolios and trust departments, investment fund managers,
insurance companies, pension funds, state and local governments, and central banks. The approved dealers for
underwriting various types of Fannie Mae debt securities may differ by funding program. See “MD&A—
Liquidity and Capital Management—Liquidity Management” for information on the composition of our
outstanding debt and a discussion of our liquidity.
Our Capital Markets group’s investment and financing activities are affected by market conditions and the
target rates of return that we expect to earn on the equity capital underlying our investments. When we
estimate that we can earn returns in excess of our targets, we generally will be an active purchaser of
mortgage loans and mortgage-related securities. When potential returns are below our investment targets, we
generally will be a less active purchaser, and may be a net seller, of mortgage assets. Our investment activities
also are subject to contractual limitations, the provisions of the senior preferred stock agreement with
Treasury, capital requirements (although our regulator has announced that these are not binding on us during
conservatorship) and other regulatory constraints, to the extent described below under “Conservatorship and
Treasury Agreements” and “Our Charter and Regulation of Our Activities.”
CONSERVATORSHIP AND TREASURY AGREEMENTS
Conservatorship
On September 6, 2008, the Director of FHFA appointed FHFA as our conservator, pursuant to its authority
under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the
Federal Housing Finance Regulatory Reform Act of 2008, or 2008 Reform Act (together, the “GSE Act”). The
conservatorship is a statutory process designed to preserve and conserve our assets and property, and put the
company in a sound and solvent condition.
The conservatorship has no specified termination date and there continues to be uncertainty regarding the
future of our company, including how long we will continue to be in existence, the extent of our role in the
market, what form we will have, and what ownership interest, if any, our current common and preferred
stockholders will hold in us after the conservatorship is terminated. For more information on the risks to our
business relating to the conservatorship and uncertainties regarding the future of our company and business, as
well as the adverse effects of the conservatorship on the rights of holders of our common stock, please see
“Risk Factors.”
Management of the Company during Conservatorship
Upon its appointment, the conservator immediately succeeded to (1) all rights, titles, powers and privileges of
Fannie Mae, and of any shareholder, officer or director of Fannie Mae with respect to Fannie Mae and its
assets, and (2) title to the books, records and assets of any other legal custodian of Fannie Mae. The
conservator has since delegated specified authorities to our Board of Directors and has delegated to
management the authority to conduct our day-to-day operations. The conservator retains the authority to
withdraw its delegations at any time.
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