Fannie Mae 2012 Annual Report Download - page 6

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PART I
We have been under conservatorship, with the Federal Housing Finance Agency (“FHFA”) acting as conservator, since
September 6, 2008. As conservator, FHFA succeeded to all rights, titles, powers and privileges of the company, and of any
shareholder, officer or director of the company with respect to the company and its assets. The conservator has since
delegated specified authorities to our Board of Directors and has delegated to management the authority to conduct our
day-to-day operations. Our directors do not have any fiduciary duties to any person or entity except to the conservator
and, accordingly, are not obligated to consider the interests of the company, the holders of our equity or debt securities or
the holders of Fannie Mae MBS unless specifically directed to do so by the conservator. We describe the rights and powers
of the conservator, key provisions of our agreements with the U.S. Department of the Treasury (“Treasury”), and their
impact on shareholders in “Business—Conservatorship and Treasury Agreements.”
This report contains forward-looking statements that are based on management’s current expectations and are subject to
significant uncertainties and changes in circumstances. Please review “Business—Forward-Looking Statements” for more
information on the forward-looking statements in this report. Our actual results may differ materially from those reflected in
our forward-looking statements due to a variety of factors including, but not limited to, those discussed in “Risk Factors”
and elsewhere in this report.
You can find a “Glossary of Terms Used in This Report” in “Management’s Discussion and Analysis of Financial Condition
and Results of Operations (‘MD&A’).”
Item 1. Business
INTRODUCTION
Fannie Mae is a government-sponsored enterprise (“GSE”) that was chartered by Congress in 1938. Our public mission is to
support liquidity and stability in the secondary mortgage market, where existing mortgage-related assets are purchased and
sold, and increase the supply of affordable housing. Our charter does not permit us to originate loans and lend money directly
to consumers in the primary mortgage market. However, as the leading source of residential mortgage credit in the secondary
market, we indirectly enable families to buy, refinance or rent a home. Our most significant activity is securitizing mortgage
loans originated by lenders into Fannie Mae mortgage-backed securities that we guarantee, which we refer to as Fannie Mae
MBS. We also purchase mortgage loans and mortgage-related securities. We use the term “acquire” in this report to refer to
both our securitizations and our purchases of mortgage-related assets. We obtain funds to support our business activities by
issuing a variety of debt securities in the domestic and international capital markets.
We have taken a number of actions in conservatorship to strengthen our financial performance, including reducing losses on
our legacy book of business, building a profitable new book of business with responsible underwriting standards and pricing
for risk. These actions are supporting the housing recovery and strengthening our financial performance. As a result of our
actions and continued improvement in the housing market, our financial results improved significantly in 2012, and we
expect our annual earnings to remain strong over the next few years. We recorded net income of $17.2 billion for 2012. Our
net income reflects our determination not to release the valuation allowance on our deferred tax assets in the fourth quarter of
2012, which we discuss in “Executive Summary—Deferred Tax Asset Valuation Allowance.” We paid Treasury senior
preferred stock dividends of $4.2 billion for the first quarter of 2013, which reflected the excess of our net worth over a $3.0
billion capital reserve applicable in 2013 under the terms of our senior preferred stock purchase agreement with Treasury.
Like the mortgage finance industry we serve, Fannie Mae is undergoing significant transformation. Since entering into
conservatorship in September 2008, our senior management, constituencies, and priorities have changed. More than 80% of
our current senior management team, and every member of our management committee, has been hired or promoted into
their current role since we entered into conservatorship. More than half of our employees were hired after conservatorship
began. Moreover, instead of being run for the benefit of shareholders, our company is managed in the overall interest of
taxpayers, which is consistent with the substantial public investment in us. This change in our constituencies is reflected in
our corporate priorities, which we discuss below in “Our Business Objectives and Strategy.” Ultimately, we help fill the role
of enabling families to buy, refinance or rent a home. We have provided approximately $3.3 trillion in liquidity to the housing
market since 2009. By keeping liquidity flowing, we support the housing recovery, which strengthens the U.S. economy.
Our conservatorship has no specified termination date, and we do not know when or how the conservatorship will be
terminated, whether we will continue to exist following conservatorship, or what changes to our business structure will be
made during or following the conservatorship. Our agreements with Treasury that provide for financial support also include
covenants that significantly restrict our business activities. We provide additional information on the conservatorship, the