Conservatorship, Senior Preferred Stock Purchase Agreement and Related Matters

12 Months Ended

Dec. 31, 2023

Conservatorship, Preferred Stock Agreements, And Related Parties [Abstract]

Conservatorship, Preferred Stock Agreements, And Related Parties

Conservatorship, Senior Preferred Stock Purchase

Agreement and Related Matters

Conservatorship

In September 2008, FHFA was appointed as our conservator pursuant to authority provided by the Federal Housing

Enterprises Financial Safety and Soundness Act of 1992, as amended (the “GSE Act”). Conservatorship is a statutory

process designed to preserve and conserve our assets and property and put the company in a sound and solvent

condition. Our conservatorship has no specified termination date.

FHFA, as conservator, succeeded to:

•all rights, titles, powers and privileges of Fannie Mae, and of any stockholder, officer or director of Fannie Mae

with respect to Fannie Mae and its assets; and

•title to the books, records and assets of any other legal custodian of Fannie Mae.

As conservator, FHFA has the authority to exercise broad powers over the company, including:

•directing us to enter into contracts or entering into contracts on our behalf; and

•transferring or selling our assets or liabilities.

FHFA has broad latitude over our business while we are in conservatorship, including authority to rehabilitate us in a

way that, while not in Fannie Mae’s best interests, is beneficial to FHFA and, by extension, the public it serves.

The GSE Act provides special protections for mortgage loans and mortgage-related assets we hold in trust. Specifically,

mortgage loans and mortgage-related assets that have been transferred to a Fannie Mae MBS trust must be held by the

conservator for the beneficial owners of such MBS and cannot be used to satisfy the company’s general creditors.

While we are operating in conservatorship, our directors:

•serve on behalf of the conservator;

•exercise their authority as directed by and with the approval (where required) of the conservator;

•owe their fiduciary duties of care and loyalty solely to the conservator, and not to either the company or the

stockholders; and

•are appointed by the conservator and not elected by stockholders.

FHFA, as conservator, has issued an order authorizing our Board of Directors to exercise specified functions and

authorities, and instructions regarding matters for which conservator decision or notification is required. The conservator

retains the authority to amend or withdraw its order and instructions at any time.

The conservator has suspended stockholder meetings since conservatorship, and our common stockholders are not

empowered to vote on directors or any other matters. The conservator also eliminated dividends on our common and

preferred stock (other than dividends on the senior preferred stock issued to the U.S. Department of Treasury described

below) during the conservatorship.

Receivership

Under the GSE Act, the Director of FHFA must place us into receivership if they determine that our assets are less than

our obligations (that is, we have a net worth deficit) or if we have not been paying our debts as they become due, in

either case, for a period of 60 days. FHFA has clarified that the 60-day measurement period will commence no earlier

than the SEC filing deadline for our Form 10-K or Form 10-Q for the relevant period. In addition, the Director of FHFA

may place us into receivership at the Director’s discretion 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. Should we be placed into receivership, different assumptions would be required to determine the

carrying value of our assets, which would likely lead to substantially different financial results. We are not aware of any

plans of FHFA: (1) to fundamentally change our business model, or (2) to reduce the aggregate amount available to or

held by the company under our equity structure, which includes the senior preferred stock purchase agreement.

Senior Preferred Stock Purchase Agreement

Overview

FHFA, as conservator, entered into a senior preferred stock purchase agreement with the U.S. Department of the

Treasury (“Treasury”) on our behalf in September 2008. In connection with that agreement, we issued Treasury

one million shares of Variable Liquidation Preference Senior Preferred Stock, Series 2008-2, which we refer to as the

“senior preferred stock,” and a warrant to purchase shares equal to 79.9% of our common stock, on a fully diluted basis,

for a nominal price of $0.00001. We have assigned a value of $4.5 billion to Treasury’s commitment, which was

recorded as a reduction to additional paid-in-capital at the time of the issuance and was partially offset by the aggregate

fair value of the warrant of $3.5 billion. We received no cash consideration for issuing either the senior preferred stock

or the warrant. The senior preferred stock purchase agreement and the terms of the senior preferred stock have been

amended multiple times since 2008 by FHFA (acting on our behalf) and Treasury. These amendments have been

accounted for as modifications of the senior preferred stock purchase agreement. As a result, these amendments did

not trigger a change in the carrying value of the senior preferred stock.

The senior preferred stock purchase agreement and accompanying stock certificate include key provisions that impact

us, including those described in the table below. For a discussion of the terms of the senior preferred stock related to

dividends, liquidation preference, and limits on redemptions and paydowns, see “Note 12, Equity.”

Treasury Funding Commitment

•On a quarterly basis, we may draw funds from Treasury to cover the amount that our total liabilities exceed our total assets for the applicable fiscal quarter (referred to as the “deficiency amount”), up to the amount of remaining funding commitment under the agreement. •As of the date of this filing: ◦$119.8 billion has been paid to us by Treasury under this funding commitment; and ◦$113.9 billion of funding commitment from Treasury remains; this amount would be reduced by any future payments by Treasury under the commitment.

Termination Provisions for Funding Commitment

•Treasury’s funding commitment has no specified end date, but will terminate upon: ◦our liquidation and the fulfillment of Treasury’s obligations under its funding commitment; ◦the payment in full of, or reasonable provision for, our liabilities (whether or not contingent, including guaranty obligations); or ◦Treasury funding the maximum amount under the agreement. •Treasury also may terminate its funding commitment and void the agreement if a court vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the appointment of the conservator or curtails the conservator’s powers.

Rights of Debt and MBS Holders

•Holders of our debt securities or our guaranteed MBS may file a claim in the United States Court of Federal Claims for relief if we default on our payment obligations on those securities and: ◦we and the conservator fail to exercise all rights under the agreement to draw on Treasury’s funding commitment, or ◦Treasury fails to perform its obligations under its funding commitment and we and/or the conservator are not diligently pursuing remedies for Treasury’s failure. •Holders may seek to require Treasury to fund us up to: ◦the amount necessary to cure the relevant payment defaults; ◦the deficiency amount; or ◦the amount of remaining funding under the agreement, whichever is the least. Any Treasury funding provided under these circumstances would increase the liquidation preference of the senior preferred stock. •The terms of the agreement generally may be amended or waived; however, no such amendment or waiver may decrease Treasury’s aggregate funding commitment or add conditions to Treasury’s funding commitment that would adversely affect in any material respect the holders of our debt or guaranteed MBS.

Commitment Fee

•The agreement provides for the payment of an unspecified quarterly commitment fee to Treasury to compensate it for its ongoing support under the agreement. •Until the capital reserve end date, the periodic commitment fee will not be set, accrue, or be payable. The capital reserve end date is defined as the last day of the second consecutive fiscal quarter during which we have had and maintained capital equal to or exceeding the capital requirements and buffers set forth in the enterprise regulatory capital framework. •No later than the capital reserve end date, we and Treasury, in consultation with the Chair of the Federal Reserve, will agree on the amount of the periodic commitment fee.

Covenants

The senior preferred stock purchase agreement contains covenants that prohibit us (and, in one instance, FHFA) from

taking several actions without the prior written consent of Treasury or require us to take specified actions, including the

following described in the table below:

Dividends and Share Repurchases

•We may not pay dividends or make other distributions on or repurchase our equity securities (other than the senior preferred stock).

Issuances of Equity Securities

•We may not issue equity securities, except for common stock issued: ◦upon exercise of the warrant; ◦as required by any pre-conservatorship agreements; and ◦following the satisfaction of two conditions: (a) the exercise of the warrant in full, and (b) the resolution of all currently pending significant litigation relating to the conservatorship and the August 2012 amendment to the senior preferred stock purchase agreement.

Termination of Conservatorship	•Neither we nor FHFA may terminate or seek to terminate the conservatorship, other than through a receivership, without the prior consent of Treasury, with one exception that allows FHFA to terminate our conservatorship without the prior consent of Treasury if the following conditions are met: ◦all currently pending significant litigation relating to the conservatorship and the August 2012 amendment to the senior preferred stock purchase agreement has been resolved; and ◦for two or more consecutive quarters, our common equity tier 1 capital (as defined in the enterprise regulatory capital framework), together with any stockholder equity that would result from a firm commitment public underwritten offering of common stock which is fully consummated concurrent with the termination of conservatorship, equals or exceeds at least 3% of our adjusted total assets (as defined in the enterprise regulatory capital framework). As of December 31, 2023, 3% of our adjusted total assets was $136.6 billion and we had a common equity tier 1 capital deficit of $74 billion.
Asset Dispositions	•We may not sell, transfer, lease or otherwise dispose of any assets, except for dispositions for fair market value in limited circumstances, including if: ◦the transaction is in the ordinary course of business and consistent with past practice; or ◦the assets have a fair market value individually or in the aggregate of less than $250 million.
Subordinated Debt	•We may not issue any subordinated debt securities.
Mortgage Assets Limit	•We may not hold mortgage assets in excess of $225 billion; however, we are currently managing our business to a $202.5 billion mortgage asset cap according to FHFA instructions.
Indebtedness	•We may not have indebtedness in excess of $270 billion.
Executive Compensation	•We may not enter into any new compensation arrangements or increase amounts or benefits payable under existing compensation arrangements with any of our executive officers (as defined by Securities and Exchange Commission (“SEC”) rules) without the consent of the Director of FHFA, in consultation with the Secretary of the Treasury.
Equitable Access and Offers for Single-Family Mortgage Loans	•We may not vary our pricing or acquisition terms for single-family loans based on the business characteristics of the seller, including the seller’s size, charter type, or volume of business with us. •We must offer to purchase at all times, for equivalent cash consideration and on substantially the same terms, any single-family mortgage loan that: ◦is of a class of loans that we then offer to acquire for inclusion in our MBS or for other non- cash consideration; ◦is offered by a seller that has been approved to do business with us; and ◦has been originated and sold in compliance with our underwriting standards.

Single-Family Loan Eligibility Program	•We must maintain a program reasonably designed to ensure that the single-family loans we acquire are limited to: ◦qualified mortgages; ◦government-backed loans; ◦loans exempt from the Consumer Financial Protection Bureau’s (the “CFPB’s”) ability-to- repay and qualified mortgage rule (other than loans secured by timeshares and home equity lines of credit, which, we are not allowed to buy); ◦loans secured by an investment property; ◦refinancing loans with streamlined underwriting originated in accordance with our eligibility criteria for high LTV ratio refinancings; ◦loans originated with temporary underwriting flexibilities during times of exigent circumstances, as determined in consultation with FHFA; ◦loans secured by manufactured housing; and ◦such other loans that FHFA may designate that were eligible for purchase by us as of January 2021.
Enterprise Regulatory Capital Framework	•We are required to comply with the enterprise regulatory capital framework rule published by FHFA in the Federal Register on December 17, 2020, disregarding any subsequent amendments or modifications to the rule. •FHFA has subsequently amended the enterprise regulatory capital framework and instructed us to comply with the framework as amended. Accordingly, we are not in compliance with this covenant. See “Note 13, Regulatory Capital Requirements” for additional information. •While our compliance with the covenants in the senior preferred stock purchase agreement is not a condition of Treasury’s funding commitment under that agreement, FHFA, as our conservator and regulator, has the authority to direct compliance or impose consequences for any non-compliance with that agreement.
Risk Management Plan	•While in conservatorship, we must provide an annual risk management plan to Treasury.

Suspended Covenants

Certain covenants in the senior preferred stock purchase agreement (described below) were temporarily suspended in

September 2021. Treasury can terminate this suspension upon six months’ notice to us. As of the date of this filing, we

have received no such notification from Treasury. The suspended covenants include:

•A prohibition on acquiring more than $1.5 billion in single-family loans for cash consideration from any single

seller (including its affiliates) during any four-quarter period.

•A prohibition on acquiring more than $80 billion in multifamily mortgage assets in any 52-week period, with this

volume cap to be adjusted by FHFA at the end of each year.

•A requirement that at least 50% of our multifamily acquisitions in any year be classified as mission-driven at the

time of acquisition.

•A prohibition on acquiring (during a 52-week period) a single-family mortgage loan if, following the acquisition,

more than 3% of our single-family loans that result from a refinancing, or 6% of our single-family loans that do

not result from a refinancing, would have two or more of the following characteristics at origination: combined

LTV ratio greater than 90%; a debt to income ratio greater than 45%; and FICO or equivalent credit score less

than 680.

•A requirement to limit our acquisitions of single-family mortgage loans secured by either second homes or

investment properties to not more than 7% of the single-family mortgage loans we have acquired during the

preceding 52-week period.

Senior Preferred Stock and Common Stock Warrant

For information about the senior preferred stock and the common stock warrant, see “Note 12, Equity.”

Impact of U.S. Government Support

We continue to rely on support from Treasury to eliminate any net worth deficits we may experience in the future, which

would otherwise trigger our being placed into receivership. Based on consideration of all the relevant conditions and

events affecting our operations, including our reliance on the U.S. government, we continue to operate as a going

concern and in accordance with FHFA’s provision of authority.

We primarily fund our business through MBS issuances, retained earnings, and the issuance of a variety of short-term

and long-term debt securities in the domestic and international capital markets. Accordingly, we are subject to “roll over,”

or refinancing, risk on our outstanding debt.

We believe that our status as a government-sponsored enterprise and continued federal government support are

essential to maintaining our access to debt funding. Changes or perceived changes in federal government support of

our business, our debt securities or our status as a government-sponsored enterprise could materially and adversely

affect our liquidity, financial condition and results of operations. In addition, due to our reliance on the U.S. government’s

support, our access to debt funding or the cost of debt funding also could be materially adversely affected by a change

or perceived change in the creditworthiness of the U.S government. A downgrade in our credit ratings could reduce

demand for our debt securities and increase our borrowing costs. Future changes or disruptions in the financial markets

could significantly impact the amount, mix and cost of funds we obtain, which also could increase our liquidity and “roll

over” risk and have a material adverse impact on our liquidity, financial condition and results of operations.

Related Parties

Because Treasury holds a warrant to purchase shares of Fannie Mae common stock equal to 79.9% of the total number

of shares of Fannie Mae common stock, we and Treasury are deemed related parties. As of December 31, 2023,

Treasury held an investment in our senior preferred stock with an aggregate liquidation preference of $195.2 billion.

FHFA’s control of both Fannie Mae and Freddie Mac has caused Fannie Mae, FHFA and Freddie Mac to be deemed

related parties. Additionally, Fannie Mae and Freddie Mac jointly own Common Securitization Solutions, LLC (“CSS”), a

limited liability company created to operate a common securitization platform; as a result, CSS is deemed a related

party. As a part of our joint ownership, Fannie Mae, Freddie Mac and CSS are parties to a limited liability company

agreement that sets forth the overall framework for the joint venture, including Fannie Mae’s and Freddie Mac’s rights

and responsibilities as members of CSS. Fannie Mae, Freddie Mac and CSS are also parties to a customer services

agreement that sets forth the terms under which CSS provides mortgage securitization services to us and Freddie Mac,

including the operation of the common securitization platform, as well as an administrative services agreement. CSS

operates as a separate company from us and Freddie Mac, with all funding and limited administrative support services

and other resources provided to it by us and Freddie Mac.

In the ordinary course of business, Fannie Mae may purchase and sell securities issued by Treasury and Freddie Mac

in the capital markets. Some of the structured securities we issue are backed in whole or in part by Freddie Mac

securities. Fannie Mae and Freddie Mac each have agreed to indemnify the other party for losses caused by: its failure

to meet its payment or other specified obligations under the trust agreements pursuant to which the underlying

resecuritized securities were issued; its failure to meet its obligations under the customer services agreement; its

violations of laws; or with respect to material misstatements or omissions in offering documents, ongoing disclosures

and materials relating to the underlying resecuritized securities. Additionally, we make regular income tax payments to

and receive tax refunds from the Internal Revenue Service (“IRS”), a bureau of Treasury.

Transactions with Treasury

Treasury Making Home Affordable Program

Our administrative expenses were reduced by approximately $6 million, $15 million and $17 million for the years ended

December 31, 2023, 2022 and 2021, respectively, due to reimbursements from Treasury and Freddie Mac for expenses

incurred as program administrator for Treasury’s Home Affordable Modification Program (“HAMP”) and other initiatives

under Treasury’s Making Home Affordable Program. Our role as program administrator concluded in the third quarter of

2023, and we received our final reimbursement from Treasury in the fourth quarter of 2023.

Obligation to Pay TCCA Fees to Treasury

In December 2011, Congress enacted the Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) which, among

other provisions, required that we increase our single-family guaranty fees by at least 10 basis points and pay this

increase to Treasury. To meet our obligations under the TCCA and at the direction of FHFA, we increased the guaranty

fee on all single-family mortgages delivered to us by 10 basis points in April 2012. The resulting fee revenue and

expense are recorded in “Interest income: Mortgage loans” and “TCCA fees,” respectively, in our consolidated

statements of operations and comprehensive income. In November 2021, the Infrastructure Investment and Jobs Act

was enacted, which extended to October 1, 2032 our obligation under the TCCA to collect 10 basis points in guaranty

fees on single-family mortgages delivered to us and pay the associated revenue to Treasury. In January 2022, FHFA

advised us to continue to collect and pay these TCCA fees on and after October 1, 2032 with respect to loans we

acquired before this date until those loans are paid off or otherwise liquidated.

We recognized $3.4 billion, $3.4 billion and $3.1 billion in TCCA fees during the years ended December 31, 2023, 2022

and 2021, respectively, of which $861 million and $854 million had not been paid as of December 31, 2023 and 2022,

respectively.

Treasury Interest in Affordable Housing Allocations

The GSE Act requires us to set aside certain funding obligations, a portion of which is attributable to Treasury’s Capital

Magnet Fund. These funding obligations are measured as the product of 4.2 basis points and the unpaid principal

balance of our total new business purchases for the respective period, with 35% of this amount payable to Treasury’s

Capital Magnet Fund. We recognized $54 million, $101 million and $209 million in “Other expenses, net” in connection

with Treasury’s Capital Magnet Fund for the years ended December 31, 2023, 2022 and 2021, respectively. We paid

$101 million and $209 million to Treasury’s Capital Magnet Fund in 2023 and 2022, respectively. In 2024, we expect to

pay $54 million to Treasury’s Capital Magnet Fund based on our new business purchases in 2023.

Transactions with FHFA

The GSE Act authorizes FHFA to establish an annual assessment for regulated entities, including Fannie Mae, which is

payable on a semi-annual basis (April and October), for FHFA’s costs and expenses, as well as to maintain FHFA’s

working capital. We recognized FHFA assessment fees, which are recorded in “Other administrative expenses” in our

consolidated statements of operations and comprehensive income, of $159 million, $132 million and $140 million for the

years ended December 31, 2023, 2022 and 2021, respectively.

Transactions with CSS and Freddie Mac

We contributed funds to CSS, the company we jointly own with Freddie Mac, of $72 million, $65 million and $76 million

for the years ended December 31, 2023, 2022 and 2021, respectively. Net operating losses associated with our

investment in CSS are recorded in “Other expenses, net” in our consolidated statements of operations and

comprehensive income.