Fannie Mae 2011 Annual Report Download - page 248

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
• If our positive net worth as of December 31, 2012 is greater than the cumulative draws for net worth
deficiencies attributable to periods during 2010, 2011, and 2012, then the amount of available funding will
be $124.8 billion less the cumulative draws attributable to periods during 2010, 2011, and 2012.
We have received a total of $111.6 billion as of December 31, 2011 under Treasury’s funding commitment and
the Acting Director of FHFA will submit a request for an additional $4.6 billion from Treasury to eliminate our
net worth deficit as of December 31, 2011. The aggregate liquidation preference of the senior preferred stock was
$112.6 billion as of December 31, 2011 and will increase to $117.1 billion as a result of FHFA’s request on our
behalf for funds to eliminate our net worth deficit as of December 31, 2011.
We were scheduled to begin paying a quarterly commitment fee to Treasury under the senior preferred stock
purchase agreement beginning on March 31, 2011; however, Treasury waived the quarterly commitment fee for
each quarter of 2011 and the first quarter of 2012 due to the continued fragility of the U.S. mortgage market and
Treasury’s belief that the imposition of the quarterly commitment fee would not generate increased compensation
for taxpayers. In its notification to FHFA that it had waived the quarterly commitment fee for the first quarter of
2012, Treasury indicated that it will reevaluate the situation during the next calendar quarter to determine
whether the quarterly commitment fee should then be set. The agreement provides that Treasury may waive the
periodic commitment fee for up to one year at a time, in its sole discretion, based on adverse conditions in the
U.S. mortgage market.
The senior preferred stock purchase agreement provides that the amount of the quarterly commitment fee is to be
set no later than December 31, 2010 with respect to the ensuing five-year period, is to be reset for every five
years thereafter, and is to be determined with reference to the market value of Treasury’s funding commitment to
Fannie Mae as then in effect. The agreement also provides that the amount of the quarterly commitment fee is to
be mutually agreed by Treasury and Fannie Mae, subject to their reasonable discretion and in consultation with
the Chairman of the Federal Reserve. As of February 29, 2012, the quarterly commitment fee for the initial five-
year period had not yet been established.
Treasury, as holder of the senior preferred stock, is entitled to receive, when, as and if directed by our
conservator, cumulative quarterly cash dividends at the annual rate of 10% per year on the current liquidation
preference of the senior preferred stock. If at any time we do not pay cash dividends in a timely manner, then all
dividend periods thereafter until the dividend period following the date on which we have paid in cash full
cumulative dividends, the dividend rate will be 12% per year.
On September 7, 2008, we issued a warrant to Treasury giving it the right to purchase, at a nominal price, shares
of our common stock equal to 79.9% of the total common stock outstanding on a fully diluted basis on the date
Treasury exercises the warrant. Treasury has the right to exercise the warrant, in whole or in part, at any time on
or before September 7, 2028. We recorded the warrant at fair value in our stockholders’ equity as a component of
additional paid-in-capital. The fair value of the warrant was calculated using the Black-Scholes Option Pricing
Model. Since the warrant has an exercise price of $0.00001 per share, the model is insensitive to the risk-free rate
and volatility assumptions used in the calculation and the share value of the warrant is equal to the price of the
underlying common stock. We estimated that the fair value of the warrant at issuance was $3.5 billion based on
the price of our common stock on September 8, 2008, which was after the dilutive effect of the warrant had been
reflected in the market price. Subsequent changes in the fair value of the warrant are not recognized in our
financial statements. If the warrant is exercised, the stated value of the common stock issued will be reclassified
as “Common stock” in our consolidated balance sheets. Because the warrant’s exercise price per share is
considered non-substantive (compared to the market price of our common stock), the warrant was determined to
have characteristics of non-voting common stock, and thus is included in the computation of basic and diluted
F-9