Fannie Mae 2012 Annual Report Download - page 42

37
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;
• 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 FHFA’s Acting Director challenging the rule’s provisions
regarding nonpayment of securities litigation claims.
Prudential Management and Operational Standards. As required by the GSE Act, in June 2012, FHFA published a final 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 were established
as guidelines, which the Director of FHFA may modify, revoke or add to at any time by order or notice. The rule also
specifies actions FHFA may take if a regulated entity fails to meet one or more of the standards or fails to comply with the
rule, 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.”