Fannie Mae 2012 Annual Report Download - page 122

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While we had a positive net worth as of December 31, 2012, in some future periods we could have a net worth deficit and if
so would be required to obtain additional funding from Treasury pursuant to the senior preferred stock purchase agreement.
The remaining amount of funding available to us under the agreement was $117.6 billion as of December 31, 2012. For
additional information, see “Business—Conservatorship and Treasury Agreements—Senior Preferred Stock Purchase
Agreement and Related Issuance of Senior Preferred Stock and Common Stock Warrant—Senior Preferred Stock Purchase
Agreement.”
Treasury waived the quarterly commitment fee under the senior preferred stock purchase agreement for each quarter of 2012
and 2011. In addition, pursuant to the amendment to the senior preferred stock purchase agreement described in “Business—
Conservatorship and Treasury Agreements,” the periodic commitment fee under the agreement has been suspended effective
January 1, 2013.
We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding commitment under
the senior preferred stock purchase agreement. Moreover, we are not permitted to pay down the liquidation preference of the
outstanding shares of senior preferred stock except to the extent of (1) accrued and unpaid dividends previously added to the
liquidation preference and not previously paid down; and (2) quarterly commitment fees previously added to the liquidation
preference and not previously paid down. In addition, if we issue any shares of capital stock for cash while the senior
preferred stock is outstanding, the net proceeds of the issuance must be used to pay down the liquidation preference of the
senior preferred stock; however, the liquidation preference of each share of senior preferred stock may not be paid down
below $1,000 per share prior to the termination of Treasury’s funding commitment. Following the termination of Treasury’s
funding commitment, we may pay down the liquidation preference of all outstanding shares of senior preferred stock at any
time, in whole or in part. The limited circumstances under which Treasury’s funding commitment will terminate are described
in “Business—Conservatorship and Treasury Agreements.”
Dividends
Our fourth quarter dividend on the senior preferred stock of $2.9 billion was declared by the conservator and paid by us on
December 31, 2012, bringing our senior preferred stock dividends paid in 2012 to $11.6 billion. Beginning in 2013, the
method for calculating the amount of dividends payable on the senior preferred stock will no longer be based on applying an
annual dividend rate of 10% to the aggregate liquidation preference of the senior preferred stock. Instead, the amount of
dividends payable on the senior preferred stock for a dividend period will be based on our net worth as of the end of the
immediately preceding fiscal quarter. For each dividend period from January 1, 2013 through and including December 31,
2017, when, as and if declared by our Board of Directors, the dividend amount will be the amount, if any, by which our net
worth as of the end of the immediately preceding fiscal quarter exceeds an applicable capital reserve amount. The applicable
capital reserve amount will be $3.0 billion for 2013 and will be reduced by $600 million each year until it reaches zero on
January 1, 2018. Our first quarter 2013 dividend on the senior preferred stock of $4.2 billion was declared by the conservator
and paid by us on March 29, 2013. For each dividend period beginning in 2018, the dividend amount will be the entire
amount of our net worth, if any, as of the end of the immediately preceding fiscal quarter.
See “Risk Factors” for a discussion of the risks relating to our dividend obligations to Treasury on the senior preferred stock.
OFF-BALANCE SHEET ARRANGEMENTS
We enter into certain business arrangements to facilitate our statutory purpose of providing liquidity to the secondary
mortgage market and to reduce our exposure to interest rate fluctuations. Some of these arrangements are not recorded in our
consolidated balance sheets or may be recorded in amounts different from the full contract or notional amount of the
transaction, depending on the nature or structure of, and accounting required to be applied to, the arrangement. These
arrangements are commonly referred to as “off-balance sheet arrangements” and expose us to potential losses in excess of the
amounts recorded in our consolidated balance sheets.
Our off-balance sheet arrangements result primarily from the following:
• our guaranty of mortgage loan securitization and resecuritization transactions over which we do not have control;
• other guaranty transactions;
• liquidity support transactions; and
• partnership interests.
Our maximum potential exposure to credit losses relating to our outstanding and unconsolidated Fannie Mae MBS and other
financial guarantees is primarily represented by the unpaid principal balance of the mortgage loans underlying outstanding