Fannie Mae 2014 Annual Report Download - page 56

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Activities—Potential Changes to Our Single-Family Guaranty Fee Pricing,” FHFA announced in June 2014 that it was
requesting public input on the guaranty fees that Fannie Mae and Freddie Mac charge lenders, and FHFA is currently
reviewing and considering the public input that was received. Based on its review, FHFA may direct us to make changes to
our guaranty fee pricing that could materially affect our financial results. If FHFA directs us to decrease our guaranty fee
pricing, depending on the extent of the decrease, it could result in a significant decrease in our guaranty fee revenues in future
periods. If FHFA directs us to increase our guaranty fee pricing, depending on the extent of the increase, it could result in
some of our lender customers retaining lower credit risk loans for their portfolio instead of delivering the loans to us. This
could lead to a decrease in our single-family business volume, negatively affect the credit risk profile of our new single-
family acquisitions and adversely affect our financial results and condition.
Because we are under the control of our conservator, our business objectives may not be consistent with the investment
objectives of our investors. FHFA has changed our business objectives significantly since we entered conservatorship, and
could make additional changes at any time. In May 2014, FHFA released its 2014 Strategic Plan for the Conservatorships of
Fannie Mae and Freddie Mac, which replaced FHFA’s strategic goals identified in 2012. Actions we take to meet FHFA’s
goals and objectives could adversely affect our financial results. For example, FHFA’s 2014 and 2015 conservatorship
scorecards include objectives relating to the development of a single common security for Fannie Mae and Freddie Mac. We
believe the development of a single common security would likely reduce, and could eliminate, the trading advantage Fannie
Mae mortgage-backed securities have over Freddie Mac mortgage-backed securities. If this occurs, we believe it would
negatively impact our ability to compete for mortgage assets in the secondary market, and therefore could adversely affect
our results of operations. Our objectives and business activities may continue to change, possibly significantly, including in
pursuit of our public mission and other non-financial objectives. Significant changes in our business objectives could
adversely affect our financial results. Moreover, we are devoting significant resources to meeting FHFA’s goals for our
conservatorship and expect to continue to do so.
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 under the agreement. 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 were permitted to own as of December 31, 2014 was $469.6 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. In
addition, as described above, FHFA has requested that we further cap our mortgage assets each year at 90% of the annual
limit under our senior preferred stock purchase agreement with Treasury.
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.
A number of lawsuits have been filed against the U.S. government relating to the senior preferred stock purchase agreement
and the conservatorship. See “Note 19, Commitments and Contingencies” and “Legal Proceedings” for a description of these
lawsuits. 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
shareholders do not have the ability to elect directors or to vote on other matters unless the conservator delegates this
authority to them.