Fannie Mae 2011 Annual Report Download - page 38

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 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 and the goals of the conservatorship, 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 29, 2012, FHFA has not exercised its power to transfer or sell our
assets or liabilities. For more information on FHFA’s powers as conservator and the rules governing
conservatorship and receivership operations for the GSEs, please see “Our Charter and Regulation of Our
Activities—Regulation and Oversight of Our Activities—Receivership.”
Neither the conservatorship nor the terms of our agreements with Treasury change 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 and
December 24, 2009. Unless the context indicates otherwise, references in this report to the senior preferred stock
purchase agreement refer to the agreement as amended through December 24, 2009. The terms of the senior
preferred stock purchase agreement, senior preferred stock and the warrant discussed below will continue to
apply to us even if we are released from the conservatorship. Please see “Risk Factors” for a description of the
risks to our business relating to the Treasury agreements, as well as the adverse effects of the senior preferred
stock and the warrant on the rights of holders of our common stock and other series of preferred stock.
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