Fannie Mae 2010 Annual Report Download - page 38

Our directors serve on behalf of the conservator and exercise their authority as directed by and with the
approval, where required, of the conservator. Our directors do not have any duties to any person or entity
except to the conservator. Accordingly, our directors are not obligated to consider the interests of the company,
the holders of our equity or debt securities or the holders of Fannie Mae MBS unless specifically directed to
do so by the conservator. In addition, the conservator directed the Board to consult with and obtain the
approval of the conservator before taking action in specified areas, as described in “Directors, Executive
Officers and Corporate Governance—Corporate Governance—Conservatorship and Delegation of Authority to
Board of Directors.”
Because we are in conservatorship, our common shareholders currently do not have the ability to elect
directors or to vote on other matters. The conservator eliminated common and preferred stock dividends (other
than dividends on the senior preferred stock issued to Treasury) during the conservatorship, and we are no
longer managed with a strategy to maximize shareholder returns. In a letter to Congress dated February 2,
2010, the Acting Director of FHFA stated that minimizing our credit losses is our central goal and that we will
be limited to continuing our existing core business activities and taking actions necessary to advance the goals
of the conservatorship. The Acting Director also stated that FHFA does not expect that we will be a
substantial buyer or seller of mortgages for our retained portfolio, except for purchases of delinquent
mortgages out of our guaranteed MBS pools. For additional information about our business strategy, please see
“Executive Summary—Our Business Objectives and Strategy.”
Powers of the Conservator under the GSE Act
FHFA has broad powers when acting as our conservator. As conservator, FHFA can direct us to enter into
contracts or enter into contracts on our behalf. Further, FHFA may transfer or sell any of our assets or
liabilities (subject to limitations and post-transfer notice provisions for transfers of certain types of financial
contracts), without any approval, assignment of rights or consent of any party. The GSE Act provides,
however, that mortgage loans and mortgage-related assets that have been transferred to a Fannie Mae MBS
trust must be held by the conservator for the beneficial owners of the Fannie Mae MBS and cannot be used to
satisfy the general creditors of the company. As of February 24, 2011, FHFA has not exercised its power to
transfer or sell our assets or liabilities.
In addition, FHFA has the power to disaffirm or repudiate most contracts that we entered into prior to its
appointment as conservator, provided that it exercises this power within a “reasonable period” following such
appointment. FHFA’s proposed rule on conservatorship and receivership operations, published on July 9, 2010,
defines a “reasonable period” as a period of 18 months following the appointment of a conservator or receiver.
This proposed rule has not been finalized. As of February 24, 2011, FHFA has not disaffirmed or repudiated
any contracts we entered into prior to its appointment as conservator.
Neither the conservatorship nor the terms of our agreements with Treasury changes our obligation to make
required payments on our debt securities or perform under our mortgage guaranty obligations.
Under the GSE Act, FHFA must place us into receivership if the Director of FHFA makes a written
determination that our assets are less than our obligations (that is, we have a net worth deficit) or if we have
not been paying our debts, in either case, for a period of 60 days. In addition, the Director of FHFA may place
us in receivership at his discretion at any time for other reasons, including conditions that FHFA has already
asserted existed at the time the Director of FHFA placed us into conservatorship. Placement into receivership
would have a material adverse effect on holders of our common stock, preferred stock, debt securities and
Fannie Mae MBS. Should we be placed into receivership, different assumptions would be required to
determine the carrying value of our assets, which could lead to substantially different financial results. For
more information on the risks to our business relating to conservatorship and uncertainties regarding the future
of our business, see “Risk Factors.”
Treasury Agreements
On September 7, 2008, we, through FHFA, in its capacity as conservator, and Treasury entered into a senior
preferred stock purchase agreement, which was subsequently amended on September 26, 2008, May 6, 2009
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