Fannie Mae 2012 Annual Report Download - page 66

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The Dodd-Frank Act and regulatory changes in the financial services industry may negatively impact our business.
The Dodd-Frank Act is significantly changing the regulation of the financial services industry, resulting in new standards
related to regulatory oversight of systemically important financial companies, derivatives transactions, asset-backed
securitization, mortgage underwriting and consumer financial protection. This legislation is affecting and will, in the future,
directly and indirectly affect many aspects of our business and could have a material adverse effect on our business, results of
operations, financial condition, liquidity and net worth. The Dodd-Frank Act and related regulatory changes could require us
to change certain business practices, cause us to incur significant additional costs, limit the products we offer, require us to
increase our regulatory capital or otherwise adversely affect our business. Additionally, implementation of this legislation will
result in increased supervision and more comprehensive regulation of our customers and counterparties in the financial
services industry, which may have a significant impact on the business practices of our customers and counterparties, as well
as on our counterparty credit risk.
Examples of aspects of the Dodd-Frank Act and related regulatory changes that may affect us include mandatory clearing of
certain derivatives transactions, which imposes significant additional costs on us; minimum standards for residential
mortgage loans, which could subject us to increased legal risk for some loans we acquire; and the development of credit risk
retention regulations applicable to residential mortgage loan securitizations, which could impact the types and volume of
loans sold to us. Uncertainty regarding the CFPB’s “ability to repay” rule may increase our legal risk for loans we acquire.
Enhanced prudential standards that become applicable to certain bank holding companies and nonbank financial companies
could affect investor demand for our debt and MBS securities. We could also be designated as a systemically important
nonbank financial company subject to supervision and regulation by the Federal Reserve. If this were to occur, the Federal
Reserve would have the authority to examine us and could impose stricter prudential standards on us, including risk-based
capital requirements, leverage limits, liquidity requirements, credit concentration limits, resolution plan and credit exposure
reporting requirements, overall risk management requirements, contingent capital requirements, enhanced public disclosures
and short-term debt limits.
Because federal agencies have not completed all of the extensive rule-making processes needed to implement and clarify
many of the provisions of the Dodd-Frank Act, it is difficult to assess fully the impact of this legislation on our business and
industry at this time, and we cannot predict what similar changes to statutes or regulations will occur in the future. In
addition, for many of the provisions of the Dodd-Frank Act, uncertainty regarding how they will ultimately be implemented
is affecting and may in the future affect our actions and those of our customers and counterparties, which may negatively
impact our business, results of operation, financial condition or liquidity.
Basel III’s revisions to international capital requirements also may have a significant impact on us. Depending on how they
are implemented by regulators, the Basel III rules could be the basis for a revised framework for GSE capital standards that
could increase our capital requirements. See “Risks Relating to Our Business,” for a discussion of how the Basel III capital
and liquidity rules could affect investor demand for our debt and MBS securities and the business practices of our customers
and counterparties.
In addition, the actions of Treasury, the CFTC, the SEC, the FDIC, the Federal Reserve and international central banking
authorities directly or indirectly impact financial institutions’ cost of funds for lending, capital-raising and investment
activities, which could increase our borrowing costs or make borrowing more difficult for us. Changes in monetary policy are
beyond our control and difficult to anticipate.
Overall, these legislative and regulatory changes could affect us in substantial and unforeseeable ways and could have a
material adverse effect on our business, results of operations, financial condition, liquidity and net worth. In particular, these
changes could affect our ability to issue debt and may reduce our customer base.
The occurrence of a major natural or other disaster in the United States could negatively impact our credit losses and
credit-related expenses or disrupt our business operations in the affected geographic area.
We conduct our business in the residential and multifamily mortgage markets and own or guarantee the performance of
mortgage loans throughout the United States. The occurrence of a major natural or environmental disaster, terrorist attack,
pandemic, or similar event (a “major disruptive event”) in a regional geographic area of the United States could negatively
impact our credit losses and credit-related expenses in the affected area.
The occurrence of a major disruptive event could negatively impact a geographic area in a number of different ways,
depending on the nature of the event. A major disruptive event that either damages or destroys residential or multifamily real
estate securing mortgage loans in our book of business or negatively impacts the ability of borrowers to continue to make
principal and interest payments on mortgage loans in our book of business could increase our delinquency rates, default rates
and average loan loss severity of our book of business in the affected region or regions, which could have a material adverse
effect on our business, results of operations, financial condition, liquidity and net worth. While we attempt to create a