Fannie Mae 2014 Annual Report Download - page 276

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
F-61
information on capital and the terms of our senior preferred stock purchase agreement with Treasury. Set forth below are
additional restrictions related to our capital requirements.
Restrictions on Capital Distributions and Dividends
Restrictions Under GSE Act. Under the GSE Act, FHFA has the authority to prohibit capital distributions, including payment
of dividends, if we fail to meet our capital requirements. If FHFA classifies us as significantly undercapitalized, we must
obtain the approval of the Director of FHFA for any dividend payment. Under the GSE Act, we are not permitted to make a
capital distribution if, after making the distribution, we would be undercapitalized. The Director of FHFA, however, may
permit us to repurchase shares if the repurchase is made in connection with the issuance of additional shares or obligations in
at least an equivalent amount and will reduce our financial obligations or otherwise improve our financial condition.
Restrictions Relating to Conservatorship. Our conservator announced on September 7, 2008 that we would not pay any
dividends on the common stock or on any series of preferred stock, other than the senior preferred stock. In addition, FHFA’s
regulations relating to conservatorship and receivership operations prohibit us from paying any dividends while in
conservatorship unless authorized by the Director of FHFA. The Director of FHFA directs us to make dividend payments on
the senior preferred stock on a quarterly basis.
Restrictions Under Senior Preferred Stock Purchase Agreement. The senior preferred stock purchase agreement prohibits us
from declaring or paying any dividends on Fannie Mae equity securities (other than the senior preferred stock) without the
prior written consent of Treasury. In addition, in 2012 the terms of the senior preferred stock purchase agreement and the
senior preferred stock were amended to ultimately require the payment of our entire net worth to Treasury. As a result, our net
income is not available to common stockholders. For more information on the terms of the senior preferred stock purchase
agreement and senior preferred stock, see “Note 14, Equity.”
Additional Restrictions Relating to Preferred Stock. Payment of dividends on our common stock is also subject to the prior
payment of dividends on our preferred stock and our senior preferred stock. Payment of dividends on all outstanding
preferred stock, other than the senior preferred stock, is also subject to the prior payment of dividends on the senior preferred
stock.
16. Concentrations of Credit Risk
Concentrations of credit risk arise when a number of customers and counterparties engage in similar activities or have similar
economic characteristics that make them susceptible to similar changes in industry conditions, which could affect their ability
to meet their contractual obligations. Based on our assessment of business conditions that could impact our financial results,
we have determined that concentrations of credit risk exist among single-family and multifamily borrowers (including
geographic concentrations and loans with certain higher-risk characteristics), mortgage sellers and servicers, mortgage
insurers, financial guarantors, lenders with risk sharing, derivative counterparties and parties associated with our off-balance
sheet transactions. Concentrations for each of these groups are discussed below.
Single-Family Loan Borrowers
Regional economic conditions may affect a borrower’s ability to repay his or her mortgage loan and the property value
underlying the loan. Geographic concentrations increase the exposure of our portfolio to changes in credit risk. Single-family
borrowers are primarily affected by home prices and interest rates. The geographic dispersion of our single-family business
has been consistently diversified over the years ended December 31, 2014 and 2013, with our largest exposures in the
Western region of the United States, which represented approximately 28% of our single-family conventional guaranty book
of business as of December 31, 2014 and 2013. Except for California, where approximately 20% of the gross unpaid
principal balance of our single-family conventional mortgage loans held or securitized in Fannie Mae MBS as of
December 31, 2014 and 2013, were located, no other significant concentrations existed in any state.
To manage credit risk and comply with legal requirements, we typically require primary mortgage insurance or other credit
enhancements if the current LTV ratio (i.e., the ratio of the unpaid principal balance of a loan to the current value of the
property that serves as collateral) of a single-family conventional mortgage loan is greater than 80% when the loan is
delivered to us.
Multifamily Loan Borrowers
Numerous factors affect a multifamily borrower’s ability to repay the loan and the value of the property underlying the loan.
The most significant factors affecting credit risk are rental income, capitalization rates for the mortgaged property, and