Fannie Mae 2013 Annual Report Download - page 50

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responsible transition. In January 2014, the White House issued a fact sheet reaffirming the Administration’s view that
housing finance reform should include ending Fannie Mae and Freddie Mac’s business model.
In a February 2012 letter to Congress, Edward DeMarco, then the Acting Director of FHFA, provided a strategic plan for
Fannie Mae and Freddie Mac’s conservatorships that included, among its three strategic goals, gradually contracting Fannie
Mae and Freddie Mac’s dominant presence in the marketplace while simplifying and shrinking our and Freddie Mac’s
operations. In January 2014, Melvin L. Watt became the new Director of FHFA. It is uncertain whether Director Watt will
make changes to FHFA’s strategic goals and objectives for Fannie Mae and Freddie Mac.
In the first session of the current Congress, members of Congress introduced several bills to reform the housing finance
system, including bills that, among other things, would require Fannie Mae and Freddie Mac to be wound down after a period
of time and place certain restrictions on Fannie Mae’s and Freddie Mac’s activities prior to being wound down. We expect
that Congress will continue to hold hearings and consider legislation on the future status of Fannie Mae and Freddie Mac,
including proposals that would result in a substantial change to our business structure or our operations, or that involve
Fannie Mae’s liquidation or dissolution. We cannot predict the prospects for the enactment, timing or content of legislative
proposals regarding the future status of the GSEs. See “Business—Housing Finance Reform” for more information about the
Administration’s report and paper, and Congressional proposals regarding GSE reform.
Congress or FHFA may also consider legislation or regulation aimed at reducing our market share including, for example,
significant changes to conforming loan limits that could reduce the number of loans available for us to acquire, which would
affect the amount of guaranty fees we receive. For example, in December 2013, FHFA requested public input on a plan to
gradually reduce the conforming loan limit for one-family residences. See “Business—Our Charter and Regulation of Our
Activities—Charter Act—Loan Standards” for more information on FHFA’s proposal.
Our dividend obligations on Treasury’s investment result in our retaining a limited and decreasing amount of our
earnings each year until 2018. Beginning in 2018, we will no longer retain any of our earnings.
As a result of our dividend obligation to Treasury, we will retain only a limited amount of our future earnings, and we will be
obligated to pay Treasury each quarter 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. This capital reserve amount is $2.4 billion for each quarterly
dividend period in 2014 and decreases by $600 million annually until it reaches zero in 2018. Accordingly, our dividend
obligations will result in our retaining a limited and decreasing amount of our earnings each year until 2018. Beginning in
2018, we will no longer retain any of our earnings, as the entire amount of our net worth at the end of each quarter will be
required to be paid to Treasury.
Because we are permitted to retain only a limited and decreasing amount of capital reserves through 2017, we may not have
sufficient reserves to avoid a net worth deficit if we experience a comprehensive loss in a future quarter. In addition,
beginning in 2018, we are not permitted to retain any capital reserves against losses in subsequent quarters; therefore, if we
have a comprehensive loss for a quarter we will also have a net worth deficit for that quarter. For any quarter for which we
have a net worth deficit, we will be required to draw funds from Treasury under the senior preferred stock purchase
agreement in order to avoid being placed into receivership. As of the date of this filing, the maximum amount of remaining
funding under the agreement is $117.6 billion.
Our regulator is authorized or required to place us into receivership under specified conditions, which would result in the
liquidation of our assets. Amounts recovered from the liquidation may not be sufficient to repay the liquidation preference
of any series of our preferred stock or to provide any proceeds to common shareholders.
FHFA is required to place us into receivership if the Director of FHFA makes a written determination that our assets are less
than our obligations for a period of 60 days after the filing deadline for our Form 10-K or Form 10-Q with the SEC. Although
Treasury committed to providing us funds in accordance with the terms of the senior preferred stock purchase agreement, if
we need funding from Treasury to avoid triggering FHFA’s obligation, Treasury may not be able to provide sufficient funds to
us within the required 60 days if it has exhausted its borrowing authority, if there is a government shutdown, or if the funding
we need exceeds the amount available to us under the agreement. In addition, we could be put into receivership at the
discretion of the Director of FHFA at any time for other reasons set forth in the GSE Act, including if we are critically
undercapitalized or if we are undercapitalized and have no reasonable prospect of becoming adequately capitalized.
A receivership would terminate the conservatorship. In addition to the powers FHFA has as our conservator, the appointment
of FHFA as our receiver would terminate all rights and claims that our shareholders and creditors may have against our assets
or under our charter arising from their status as shareholders or creditors, except for their right to payment, resolution or other
satisfaction of their claims as permitted under the GSE Act. Unlike a conservatorship, the purpose of which is to conserve our