Fannie Mae 2012 Annual Report Download - page 114

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Overall debt funding activity decreased in 2012 compared with 2011 primarily due to lower funding needs as a result of a
reduction in the size of our mortgage portfolio pursuant to the requirements of the senior preferred stock purchase agreement.
Our debt funding activity is influenced by the size of our mortgage portfolio, anticipated liquidity needs and our dividend
payment obligations to Treasury. As we discuss in “Critical Accounting Policies and Estimates—Deferred Tax Assets,” we
expect that, if we release the valuation allowance on our deferred tax assets, we will pay Treasury a significant dividend in
the quarter following the release. We will fund such a dividend payment primarily through the issuance of debt securities and
funds we would otherwise use to redeem debt.
We believe that continued federal government support of our business and the financial markets, as well as our status as a
GSE, are essential to maintaining our access to debt funding. Changes or perceived changes in federal government support of
our business and the financial markets or our status as a GSE could materially and adversely affect our liquidity, financial
condition and results of operations. For more information on GSE reform, see “Legislative and Regulatory Developments—
GSE Reform” and “Risk Factors.”
In addition, due to our reliance on the U.S. government’s support, our access to debt funding or the cost of our debt funding
could be materially adversely affected by a change or perceived change in the creditworthiness of the U.S. government. A
downgrade in our credit ratings could reduce demand for our debt securities and increase our borrowing costs. See our
discussion of credit ratings in “Risk Factors” for information about factors that may lead to the U.S. government’s long-term
debt rating being lowered, and “Credit Ratings” for further discussion of our dependence on our credit ratings.
Future changes or disruptions in the financial markets could significantly change the amount, mix and cost of funds we
obtain, which also could increase our liquidity and roll-over risk and have a material adverse impact on our liquidity,
financial condition and results of operations. See “Risk Factors” for a discussion of the risks we face relating to (1) the
uncertain future of our company; (2) our reliance on the issuance of debt securities to obtain funds for our operations and the
relative cost to obtain these funds; and (3) our liquidity contingency plans.
Outstanding Debt
Total outstanding debt of Fannie Mae includes federal funds purchased and securities sold under agreements to repurchase
and short-term and long-term debt, excluding debt of consolidated trusts.
As of December 31, 2012, our outstanding short-term debt, based on its original contractual maturity, as a percentage of our
total outstanding debt decreased to 17% from 20% as of December 31, 2011. For information on our outstanding debt
maturing within one year, including the current portion of our long-term debt, as a percentage of our total debt, see “Maturity
Profile of Outstanding Debt of Fannie Mae.” In addition, the weighted-average interest rate on our long-term debt, based on
its original contractual maturity, decreased to 2.25% as of December 31, 2012 from 2.42% as of December 31, 2011.
Pursuant to the terms of the senior preferred stock purchase agreement, we are prohibited from issuing debt without the prior
consent of Treasury if it would result in our aggregate indebtedness exceeding our outstanding debt limit, which is 120% of
the amount of mortgage assets we were allowed to own on December 31 of the immediately preceding calendar year. Our
debt limit under the senior preferred stock purchase agreement was reduced to $874.8 billion in 2012. As of December 31,
2012, our aggregate indebtedness totaled $621.8 billion, which was $253.0 billion below our debt limit. The calculation of
our indebtedness for purposes of complying with our debt limit reflects the unpaid principal balance and excludes debt basis
adjustments and debt of consolidated trusts. Because of our debt limit, we may be restricted in the amount of debt we issue to
fund our operations.