Fannie Mae 2013 Annual Report Download - page 52

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the power to transfer or sell any of our assets or liabilities. In addition, our directors do not have fiduciary duties to any
person or entity except to the conservator. Accordingly, our directors 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 in making or approving a decision
unless specifically directed to do so by the conservator.
Because we are under the control of our conservator, our strategic and operational focus may not be consistent with the
investment objectives of our investors. In addition, we may be required to engage in activities that are operationally difficult,
costly to implement or unprofitable. For example, under the portfolio reduction requirement of our senior preferred stock
purchase agreement with Treasury, we may be required to dispose of assets at unfavorable prices or that may be more
economical to hold.
FHFA, as conservator, has determined that, while we are in conservatorship, we will be limited to continuing our existing
core business activities and taking actions to advance the goals of the conservatorship. In 2012, FHFA’s then-Acting Director
identified strategic goals for our and Freddie Mac’s conservatorships that included building a new infrastructure for the
secondary mortgage market and gradually contracting our and Freddie Mac’s dominant presence in the marketplace, while
simplifying and shrinking our operations. FHFA has directed us to implement specific objectives to implement these strategic
goals and we are devoting significant resources to meeting these objectives. In view of FHFA’s strategic goals, we expect that
our objectives and business activities will continue to change, possibly significantly, including in pursuit of our public
mission and other non-financial objectives. In addition, in January 2014, Melvin L. Watt became the new Director of FHFA,
which could result in changes to FHFA’s strategic goals for our conservatorship.
The senior preferred stock purchase agreement with Treasury includes a number of covenants that significantly restrict our
business activities. We cannot, without the prior written consent of Treasury: pay dividends (except on the senior preferred
stock); sell, issue, purchase or redeem Fannie Mae equity securities; sell, transfer, lease or otherwise dispose of assets in
specified situations; engage in transactions with affiliates other than on arm’s-length terms or in the ordinary course of
business; issue subordinated debt; or incur indebtedness that would result in our aggregate indebtedness exceeding 120% of
the amount of mortgage assets we are allowed to own. In deciding whether to consent to any request for approval it receives
from us under the agreement, Treasury has the right to withhold its consent for any reason and is not required by the
agreement to consider any particular factors, including whether or not management believes that the transaction would
benefit the company. Pursuant to the senior preferred stock purchase agreement, the maximum allowable amount of mortgage
assets we are permitted to own as of December 31, 2013 was $552.5 billion, and on each December 31 thereafter, our
mortgage assets may not exceed 85% of the maximum allowable amount that we were permitted to own as of December 31
of the immediately preceding calendar year until the amount of our mortgage assets reaches $250 billion. This limit on the
amount of mortgage assets we are permitted to hold could constrain the amount of delinquent loans we purchase from single-
family MBS trusts, which could increase our costs.
Actions taken by the conservator and the restrictions set forth in the senior preferred stock purchase agreement could
adversely affect our business, results of operations, financial condition, liquidity and net worth.
Several lawsuits have been filed by preferred and common stockholders of Fannie Mae and Freddie Mac against the United
States, Treasury and/or FHFA challenging actions taken by the defendants relating to the senior preferred stock purchase
agreements and the conservatorships of Fannie Mae and Freddie Mac. We are not a party to these lawsuits, except for the In
re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action and Arrowood Indemnity Company
suits described in “Note 19, Commitments and Contingencies” and the Fisher v. United States of America suit described in
“Legal Proceedings.” The legal claims being advanced by one or more of these lawsuits include challenges to the net worth
sweep dividend provisions of the senior preferred stock that were implemented pursuant to the August 2012 amendments to
the agreements, as well as to FHFA’s decision to require Fannie Mae and Freddie Mac to draw funds from Treasury in order
to pay dividends to Treasury during conservatorship. We cannot predict the course or the outcome of these lawsuits, or the
actions the U.S. government (including Treasury or FHFA) may take in response to any ruling or finding in any of these
lawsuits. Accordingly, we cannot predict what impact, if any, these lawsuits will have on our business.
The conservatorship and investment by Treasury have had, and will continue to have, a material adverse effect on our
common and preferred shareholders.
We do not know when or how the conservatorship will terminate. Moreover, even if the conservatorship is terminated, we
remain subject to the terms of the senior preferred stock purchase agreement, senior preferred stock and warrant, which can
only be canceled or modified with the consent of Treasury. The conservatorship and investment by Treasury have had, and
will continue to have, material adverse effects on our common and preferred shareholders, including the following:
No voting rights during conservatorship. The rights and powers of our shareholders are suspended during the
conservatorship. The conservatorship has no specified termination date. During the conservatorship, our common