Fannie Mae 2012 Annual Report Download - page 40

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(2) effective January 1, 2015, we will implement an updated accounting policy related to charging-off delinquent loans. We
are currently assessing the impact of implementing these accounting changes on our future financial results.
For information on additional regulatory matters affecting us, refer to “Our Charter and Regulation of Our Activities.” For a
discussion of risks relating to legislative and regulatory matters, see “Risk Factors.”
OUR CHARTER AND REGULATION OF OUR ACTIVITIES
Charter Act
We are a shareholder-owned corporation, originally established in 1938, organized and existing under the Federal National
Mortgage Association Charter Act, as amended, which we refer to as the Charter Act or our charter. The Charter Act sets forth
the activities that we are permitted to conduct, authorizes us to issue debt and equity securities, and describes our general
corporate powers. The Charter Act states that our purposes are to:
• provide stability in the secondary market for residential mortgages;
• respond appropriately to the private capital market;
• provide ongoing assistance to the secondary market for residential mortgages (including activities relating to mortgages
on housing for low- and moderate-income families involving a reasonable economic return that may be less than the
return earned on other activities) by increasing the liquidity of mortgage investments and improving the distribution of
investment capital available for residential mortgage financing; and
• promote access to mortgage credit throughout the nation (including central cities, rural areas and underserved areas) by
increasing the liquidity of mortgage investments and improving the distribution of investment capital available for
residential mortgage financing.
It is from these sections of the Charter Act that we derive our mission of providing liquidity, increasing stability and
promoting affordability in the residential mortgage market. In addition to the alignment of our overall strategy with these
purposes, all of our business activities must be permissible under the Charter Act. Our charter authorizes us to: purchase,
service, sell, lend on the security of, and otherwise deal in certain mortgage loans; issue debt obligations and mortgage-
related securities; and “do all things as are necessary or incidental to the proper management of [our] affairs and the proper
conduct of [our] business.”
Loan Standards
Mortgage loans we purchase or securitize must meet the following standards required by the Charter Act.
• Principal Balance Limitations. Our charter permits us to purchase and securitize mortgage loans secured by either a
single-family or multifamily property. Single-family conventional mortgage loans are subject to maximum original
principal balance limits, known as “conforming loan limits.” The conforming loan limits are established each year
based on the average prices of one-family residences.
The national conforming loan limit for mortgages that finance one-family residences is $417,000 in 2013, as it was in
2010 through 2012, with higher limits for mortgages secured by two- to four-family residences and in four statutorily-
designated states and territories (Alaska, Hawaii, Guam and the U.S. Virgin Islands). Higher loan limits also apply in
high-cost areas (counties or county-equivalent areas) that are designated by FHFA annually. Our charter sets permanent
loan limits for high-cost areas up to 150% of the national loan limit ($625,500 for a one-family residence; higher for
two- to four-family residences and in the four statutorily-designated states and territories).
No statutory limits apply to the maximum original principal balance of multifamily mortgage loans that we purchase or
securitize. In addition, the Charter Act imposes no maximum original principal balance limits on loans we purchase or
securitize that are insured by FHA or guaranteed by the VA.
• Loan-to-Value and Credit Enhancement Requirements. The Charter Act generally requires credit enhancement on any
single-family conventional mortgage loan that we purchase or securitize if it has a loan-to-value ratio over 80% at the
time of purchase. We also do not purchase or securitize second lien single-family mortgage loans when the combined
loan-to-value ratio exceeds 80%, unless the second lien mortgage loan has credit enhancement in accordance with the
requirements of the Charter Act. The credit enhancement required by our charter may take the form of one or more of
the following: (1) insurance or a guaranty by a qualified insurer of the over-80% portion of the unpaid principal balance
of the mortgage; (2) a seller’s agreement to repurchase or replace the mortgage in the event of default (for such period
and under such circumstances as we may require); or (3) retention by the seller of at least a 10% participation interest