Fannie Mae 2011 Annual Report Download - page 50

• we are prohibited from making capital distributions while in conservatorship unless authorized by the
Director of FHFA; and
• claims by current or former shareholders (including securities litigation claims) would receive the lowest
priority in a receivership, behind: (1) administrative expenses of the receiver (or an immediately preceding
conservator), (2) our other general or senior liabilities, and (3) obligations subordinated to those of general
creditors.
The rule also provides that FHFA, as conservator, will not pay securities litigation claims against us during
conservatorship, unless the Director of FHFA determines it is in the interest of the conservatorship. An action,
which was brought by the Ohio Public Employees Retirement System and the State Teachers Retirement System
of Ohio, is currently pending in the U.S. District Court for the District of Columbia against FHFA and Acting
Director DeMarco challenging the rule’s provisions regarding nonpayment of securities litigation claims.
Prudential Management and Operational Standards. As required by the GSE Act, in June 2011, FHFA issued a
proposed rule establishing prudential standards relating to the management and operations of Fannie Mae,
Freddie Mac and the FHLBs in the following ten areas: (1) internal controls and information systems;
(2) independence and adequacy of internal audit systems; (3) management of market risk exposure;
(4) management of market risk—measurement systems, risk limits, stress testing, and monitoring and reporting;
(5) adequacy and maintenance of liquidity and reserves; (6) management of asset and investment portfolio
growth; (7) investments and acquisitions of assets; (8) overall risk management processes; (9) management of
credit and counterparty risk; and (10) maintenance of adequate records. These standards are proposed to be
adopted as guidelines, which the Director of FHFA may modify, revoke or add to at any time by order. The
proposed rule provides that FHFA may take specified remedial actions if a regulated entity fails to meet one or
more of the standards, such as requiring the entity to submit a corrective plan or increasing its capital
requirements.
Affordable Housing Goals and Duty to Serve. We discuss our affordable housing goals and our duty to serve
underserved markets below under “Housing Goals and Duty to Serve Underserved Markets.”
Affordable Housing Allocations. The GSE Act requires us to set aside in each fiscal year an amount equal to
4.2 basis points for each dollar of the unpaid principal balance of our total new business acquisitions, and to
allocate such amount to certain government funds. The GSE Act also allows FHFA to suspend allocations on a
temporary basis. In November 2008, FHFA advised us that it was suspending our allocations until further notice.
Executive Compensation. The Charter Act requires that compensation of our executives be reasonable and
comparable with the compensation of executives performing similar duties in similar businesses, except that a
significant portion of potential compensation must be based on our performance. Further, the GSE Act directs
FHFA to prohibit us from providing unreasonable or non-comparable compensation to our executive officers.
FHFA may at any time review the reasonableness and comparability of an executive officer’s compensation and
may require us to withhold any payment to the officer during such review. FHFA is also authorized to prohibit or
limit certain golden parachute and indemnification payments to directors, officers and certain other parties.
FHFA has issued rules relating to golden parachute payments, setting forth factors to be considered by the
Director of FHFA in acting upon his authority to limit such payments.
Fair Lending. The GSE Act requires the Secretary of HUD to assure that the GSEs meet their fair lending
obligations. Among other things, HUD is required to periodically review and comment on the underwriting and
appraisal guidelines of each company to ensure consistency with the Fair Housing Act. HUD is currently
conducting such a review.
Capital Adequacy Requirements
The GSE Act establishes capital adequacy requirements. The statutory capital framework incorporates two
different quantitative assessments of capital—a minimum capital requirement and a risk-based capital
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