AN OVERVIEW OF A FORTUNE 500 COMPANY: FEDERAL NATIONAL MORTGAGE ASSOCIATION (FANNIE MAE)

PRESENTED BY MD. TAZUL ISLAM MBA 46D ROLL:133

Business

Borrows at lower rate and lends at higher rate Borrowings are from selling bonds and lendings are to mortgages and Mortgage Based Security A significant portion of income came from guaranty fees it received as compensation for assuming the credit risk

Business (Contd.)

Buys loans from approved mortgage sellers, either for cash or in exchange for a MBS .Carries Fannie Mae's guarantee of timely payment of interest and principal. Fannie Mae may also securitize mortgages from its own loan portfolio and sell the resultant mortgage-backed security to investors in the secondary mortgage market By purchasing the mortgages, Fannie Mae provides banks and other financial institutions with fresh money to make new loans. This gives the United States housing and credit markets flexibility and liquidity.

Income Profile
Revenue US$ 22.9 billion (2012) Net income US$ 17.2 billion (2012) Total assets US$ 3.2 trillion (2012) Total equity US$ 7.2 billion (2012) $8.1 billion in net income for the first quarter of 2013 fifth consecutive quarterly profit and the largest quarterly pre-tax income in our history. Going to pay a dividend of $59.4 billion to its owners

History (Pre 2000)

Established in 1938 by amendments to the National Housing Act after the Great Depression For the first thirty years following its inception, Fannie Mae held a monopoly over the secondary mortgage market In 1981, Fannie Mae issued its first mortgage pass-through and called it a mortgagebacked security.

History Contd. (Post 2000s)

The growth of private-label securitization and lack of regulation resulted in the oversupply of underpriced housing finance and consequently more decrease of the price Depreciation in home prices led to growing losses for the GSEs like Fannie Mae In July 2008, The US Treasury Department and the Federal Reserve took steps to bolster confidence in the corporations, including granting access to Federal Reserve low-interest loans (at similar rates as commercial banks) On September 7, 2008, James Lockhart, director of the Federal Housing Finance Agency (FHFA), announced that Fannie Mae was placed into conservatorship. The action was "one of the most sweeping government interventions in private financial markets in decades".

Controversies

All the Devils are Here by Mclean & Nocera Accounting controversy Conflict of interest 2011 SEC charges

Nassim Taleb wrote in The Black Swan: "The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events 'unlikely'".

Stock Performance
Adj Close Price
70 60

50

40 Adj Close Price 30

20

10

0 5/25/2007

5/25/2008

5/25/2009

5/25/2010

5/25/2011

5/25/2012