Fannie Mae 2011 Annual Report Download - page 49

FHFA is responsible for implementing the various provisions of the GSE Act. In general, we remain subject to
existing regulations, orders and determinations until new ones are issued or made.
Capital. The GSE Act provides FHFA with broad authority to increase the level of our required minimum capital
and to establish capital or reserve requirements for specific products and activities. FHFA also has broad authority
to establish risk-based capital requirements, to ensure that we operate in a safe and sound manner and maintain
sufficient capital and reserves. During the conservatorship, FHFA has suspended our capital classifications. We
continue to submit capital reports to FHFA during the conservatorship, and FHFA continues to monitor our capital
levels. We describe our capital requirements below under “Capital Adequacy Requirements.”
Portfolio. The GSE Act requires FHFA to establish standards governing our portfolio holdings, to ensure that
they are backed by sufficient capital and consistent with our mission and safe and sound operations. FHFA is also
required to monitor our portfolio and, in some circumstances, may require us to dispose of or acquire assets. In
2010, FHFA published a final rule adopting, as the standard for our portfolio holdings, the portfolio limits
specified in the senior preferred stock purchase agreement described under “Treasury Agreements—Covenants
under Treasury Agreements,” as it may be amended from time to time. The rule is effective for as long as we
remain subject to the terms and obligations of the senior preferred stock purchase agreement.
New Products. The GSE Act requires us to obtain FHFA’s approval before initially offering any product,
subject to certain exceptions. The GSE Act also requires us to provide FHFA with written notice before
commencing any new activity. In July 2009, FHFA published an interim final rule implementing these provisions
of the GSE Act. Subsequently, the Acting Director of FHFA concluded that permitting us to offer new products
at this time is inconsistent with the goals of the conservatorship. He therefore instructed us not to submit requests
for approval of new products under the interim final rule. We cannot predict when or if FHFA will permit us to
submit new product requests under the rule.
Receivership. Under the GSE Act, FHFA must place us into receivership if it determines that our assets are less
than our obligations for 60 days, or we have not been paying our debts as they become due for 60 days. FHFA
has notified us that the measurement period for any mandatory receivership determination with respect to our
assets and liabilities would commence no earlier than the SEC public filing deadline for our quarterly or annual
financial statements and would continue for 60 calendar days thereafter. FHFA has advised us that if, during that
60-day period, we receive funds from Treasury in an amount at least equal to the deficiency amount under the
senior preferred stock purchase agreement, the Director of FHFA will not make a mandatory receivership
determination.
In addition, we could be put into receivership at the discretion of the Director of FHFA at any time for other
reasons, including conditions that FHFA has already asserted existed at the time the then-Director of FHFA
placed us into conservatorship. The statutory grounds for discretionary appointment of a receiver include: a
substantial dissipation of assets or earnings due to unsafe or unsound practices; the existence of an unsafe or
unsound condition to transact business; an inability to meet our obligations in the ordinary course of business; a
weakening of our condition due to unsafe or unsound practices or conditions; critical undercapitalization; the
likelihood of losses that will deplete substantially all of our capital; or by consent.
In June 2011, FHFA issued a final rule establishing a framework for conservatorship and receivership operations
for the GSEs. The rule is part of FHFA’s implementation of the powers provided by the 2008 Reform Act, and
does not seek to anticipate or predict future conservatorships or receiverships. The final rule, which became
effective on July 20, 2011, establishes procedures for conservatorship and receivership, and priorities of claims
for contract parties and other claimants. For example, the final rule clarifies that:
• the powers of the conservator or receiver include continuing our mission and ensuring that our operations
foster liquid, efficient, competitive and resilient national housing finance markets;
• the conservator or receiver may disaffirm or repudiate any contract or lease to which we are a party for up to
18 months following the appointment of a conservator or receiver;
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