UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 10, 2008

Federal National Mortgage Association

Federally chartered corporation (State or other jurisdiction of incorporation)		000-50231 (Commission File Number)		52-0883107 (IRS Employer Identification Number)

3900 Wisconsin Avenue, NW Washington, DC (Address of principal executive offices)		20016 (Zip Code)

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

     The information in this report, including information in the exhibits submitted herewith, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of Section 18, nor shall it be deemed incorporated by reference into any disclosure document relating to Fannie Mae, except to the extent, if any, expressly incorporated by specific reference in that document.

Item 2.02 Results of Operations and Financial Condition

     On November 10, 2008, Fannie Mae (formally known as the Federal National Mortgage Association) filed its quarterly report on Form 10-Q for the quarter ended September 30, 2008 and issued a news release reporting its financial results for the periods covered by the Form 10-Q. The News Release, a copy of which is furnished as Exhibit 99.1 to this report, is incorporated herein by reference.

Item 7.01 Regulation FD Disclosure

     On November 10, 2008, Fannie Mae posted to its Web site a 2008 Q3 10-Q Credit Supplement presentation consisting primarily of information about Fannie Mae’s credit book of business. The presentation, a copy of which is furnished as Exhibit 99.2 to this report, is incorporated herein by reference. Fannie Mae’s Web site address is www.fanniemae.com. Information appearing on the company’s Web site is not incorporated into this report.

Item 9.01 Financial Statements and Exhibits.

     (d) Exhibits. The exhibit index filed herewith is incorporated herein by reference.

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

Date: November 10, 2008

EXHIBIT INDEX

The following exhibits are submitted herewith:

Exhibit Number		Description of Exhibit
99.1		News release, dated November 10, 2008
99.2		2008 Q3 10-Q Credit Supplement presentation, dated November 10, 2008

Exhibit 99.1

Media Hotline: 1-888-326-6694
Resource Center: 1-800-732-6643

Contact:		Janis Smith 202-752-6673

Number: 4522a

Date: November 10, 2008

Fannie Mae Reports Third Quarter 2008 Results

WASHINGTON, DC — Fannie Mae (FNM/NYSE) reported a loss of $29.0 billion, or ($13.00) per diluted share, in the third quarter of 2008, compared with a second quarter 2008 loss of $2.3 billion, or ($2.54) per diluted share. Third-quarter results were driven primarily by a $21.4 billion non-cash charge to establish a valuation allowance against deferred tax assets, as well as $9.2 billion in credit-related expenses arising from the ongoing deterioration in mortgage credit conditions and declining home prices. The company on September 6, 2008, began operating under the conservatorship of the Federal Housing Finance Agency (FHFA).

Summary of Third-Quarter Financial Results

(dollars in millions)		Q3 2008				Q2 2008				Variance				Q3 2007(1)				Variance
Net interest income		$	2,355			$	2,057			$	298			$	1,058			$	1,297
Guaranty fee income			1,475				1,608				(133	)			1,232				243
Trust management income			65				75				(10	)			146				(81	)
Fee and other income			164				225				(61	)			217				(53	)
Net revenues			4,059				3,965				94				2,653				1,406
Fair value gains (losses), net			(3,947	)			517				(4,464	)			(2,082	)			(1,865	)
Investment losses, net			(1,624	)			(883	)			(741	)			(159	)			(1,465	)
Losses from partnership investments			(587	)			(195	)			(392	)			(147	)			(440	)
Losses on certain guaranty contracts (2)			—				—				—				(294	)			294
Credit-related expenses			(9,241	)			(5,349	)			(3,892	)			(1,200	)			(8,041	)
Administrative expenses			(401	)			(512	)			111				(660	)			259
Other non-interest expenses			(147	)			(286	)			139				(95	)			(52	)
Net losses and expenses			(15,947	)			(6,708	)			(9,239	)			(4,637	)			(11,310	)
Loss before federal income taxes and extraordinary losses			(11,888	)			(2,743	)			(9,145	)			(1,984	)			(9,904	)
Provision (benefit) for federal income taxes			17,011				(476	)			17,487				(582	)			17,593
Extraordinary gains (losses), net of tax effect			(95	)			(33	)			(62	)			3				(98	)
Net loss		$	(28,994	)		$	(2,300	)		$	(26,694	)		$	(1,399	)		$	(27,595	)
Diluted loss per common share		$	(13.00	)		$	(2.54	)		$	(10.46	)		$	(1.56	)		$	(11.44	)

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Fannie Mae Third Quarter Results
Page Two

Net revenue rose 2.4 percent to $4.1 billion in the third quarter from $4.0 billion in the second quarter:

	•		Net interest income was $2.4 billion, up 14.5 percent from $2.1 billion in the second quarter, driven by the reduction in short-term borrowing rates, which reduced the average cost of our debt.
	•		Guaranty fee income was $1.5 billion, down 8.3 percent from $1.6 billion in the second quarter, driven primarily by fair value losses on certain guaranty assets.

The valuation allowance against deferred tax assets, which we established by taking a non-cash charge, totaled $21.4 billion. The allowance was the driver of the $17.0 billion third-quarter provision for federal income taxes. The valuation allowance against deferred tax assets is discussed below under “Net Worth.”

Credit-related expenses, which are the total provision for credit losses plus foreclosed property expense, were $9.2 billion in the third quarter, compared with $5.3 billion in the second quarter. The increase was driven by higher charge-offs in our mortgage credit book of business, as well as a $6.7 billion addition to the combined loss reserves to cover our current estimate of losses in our book of business that will be recorded as charge-offs in future periods.

Combined loss reserves stood at $15.6 billion on September 30, up from $8.9 billion at the end of the second quarter. The combined loss reserves on September 30 were 53 basis points of our guaranty book of business compared with 31 basis points on June 30. We have substantially increased our combined loss reserves to cover losses we believe will be recorded over time in charge-offs.

Net fair-value losses were $3.9 billion in the third quarter, compared with $517 million of fair-value gains in the second quarter. The primary drivers were $2.9 billion in trading securities losses arising from a significant widening of credit spreads, and $3.3 billion in derivatives losses driven by interest rate declines, partially offset by gains on hedged mortgage assets.

Net investment losses were $1.6 billion in the quarter, compared with losses of $883 million in the second quarter. The third-quarter loss was driven by other-than-temporary impairments of $1.8 billion recorded primarily on private-label securities backed by Alt-A and subprime mortgages, and reflected a reduction in expected cash flows for a portion of our private-label securities portfolio. Net investment losses also included $293 million of gains on the sale of available-for-sale securities.

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Fannie Mae Third Quarter Results
Page Three

Nonperforming loans were $63.6 billion, or 2.2 percent of our total guaranty book of business, on September 30, compared with $46.1 billion, or 1.6 percent, as of June 30. Our total nonperforming assets, which consist of nonperforming loans together with our inventory of foreclosed properties, were $71.0 billion, or 2.4 percent of our total guaranty book of business and foreclosed properties, compared with nonperforming assets of $52.0 billion, or 1.8 percent, on June 30.

Single-family foreclosure rate, reflecting the number of single-family properties acquired through foreclosure as a percentage of the total number of loans in our conventional single-family mortgage credit book of business, was 0.40 percent for the nine months ended September 30 and was 0.16 percent for the third quarter of 2008, compared with 0.13 percent for the second quarter. Our inventory of single-family foreclosed properties was 67,519 on September 30, compared with 54,173 as of June 30, and 33,729 as of December 31, 2007.

Loss per share increased from ($2.54) in the second quarter to ($13.00) in the third quarter. The per-share figure takes into account the dilutive effect of the common stock warrant issued to the U.S. Treasury. Weighted-average common shares outstanding in the third quarter on a basic and fully diluted basis were approximately 2,262,000,000.

Further information about our credit performance, the characteristics of our mortgage credit book of business, the drivers of our credit losses, and other measures is contained in the “2008 Q3 10-Q Credit Supplement” on Fannie Mae’s Web site, www.fanniemae.com. We provide a complete discussion of market conditions, our financial condition, credit performance, the fair-value balance sheet and other matters in our quarterly report on Form 10-Q for the period ended September 30, 2008.

Net Worth

Our net worth, which equals our assets less our liabilities, was $9.4 billion on September 30, compared with $41.4 billion on June 30. Net worth is substantially the same as stockholders’ equity except that net worth also includes minority interests that third parties own in our consolidated subsidiaries. Our stockholders’ equity on September 30 was $9.3 billion.

Deferred Tax Assets: The primary driver of our decrease in capital was a $21.4 billion non-cash charge to establish a valuation allowance against the company’s deferred tax assets, as noted above. Deferred tax assets arise when we expect future tax benefits to result from tax credits, and from differences between our financial statement carrying amounts and our tax bases for our assets and liabilities.

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Fannie Mae Third Quarter Results
Page Four

The valuation allowance was the result of management’s conclusion that, as of September 30, 2008, it was more likely than not that the company would not generate taxable income in future periods sufficient to realize the full value of these assets.

Our conclusion was based on our consideration of the relative weight of the available evidence, including the rapid deterioration of market conditions, the uncertainty of future market conditions on our results of operations and significant uncertainty surrounding our future business model as a result of the placement of the company into conservatorship by the Director of FHFA. This charge reduced our net deferred tax assets to $4.6 billion as of September 30, 2008, from $20.6 billion as of June 30, 2008. The remaining deferred tax assets could be subject to an additional valuation allowance in the future.

Regulatory Capital Requirements: FHFA announced on October 9, 2008, that our existing statutory and FHFA-directed regulatory capital requirements will not be binding during the conservatorship. Under a senior preferred stock purchase agreement with Treasury, Treasury has agreed to provide up to $100 billion cash, in exchange for increases to the liquidation preference of its senior preferred stock, necessary to ensure that our net worth, or our total assets minus our total liabilities, remains positive. Further information related to the conservatorship and our agreements with Treasury are discussed below under “Conservatorship.”

If current trends in the housing and financial markets continue or worsen, and we have a significant net loss in the fourth quarter of 2008, we may have a negative net worth as of December 31, 2008. If this were to occur, we would be required to obtain funding from Treasury pursuant to its commitment under the senior preferred stock purchase agreement in order to avoid a mandatory trigger of receivership under current statute.

Fannie Mae also reported a significant decrease in the non-GAAP estimated fair value of its net assets, from a positive $35.8 billion on December 31, 2007, to a negative ($46.4 billion) on September 30, 2008. The main drivers were:

•   A decrease due to the non-cash charge of $21.4 billion recorded during the third quarter of 2008 in our condensed consolidated results of operations to establish a partial deferred tax asset valuation allowance and an additional decrease of approximately $19.5 billion related to the deferred taxes associated with the fair value adjustments on our assets and liabilities, excluding our available-for-sale mortgage securities.

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Fannie Mae Third Quarter Results
Page Five

•   A decrease of approximately $36.6 billion, net of related tax, in the fair value of our net guaranty assets, reflecting the significant increase in the fair value of our guaranty obligations attributable to an increase in expected credit losses as well as an increase in risk premium due to our current guaranty fee pricing.

•   A decrease in the fair value of the net portfolio for our Capital Markets business, largely attributable to the significant widening of mortgage-to-debt option-adjusted spreads during the first nine months of 2008.

Third-Quarter Business Segment Review

Fannie Mae conducts its activities through three complementary business segments: Single-Family Credit Guaranty, Housing and Community Development, and Capital Markets. Our Single-Family Credit Guaranty business works with our lender customers to securitize single-family mortgage loans into Fannie Mae mortgage-backed securities (MBS) and to facilitate the purchase of single-family mortgage loans for our mortgage portfolio. Housing and Community Development (HCD) works with our lender customers to securitize multifamily mortgage loans into Fannie Mae MBS and to facilitate the purchase of multifamily mortgage loans for our mortgage portfolio. Our HCD business also makes debt and equity investments to increase the supply of affordable housing. Our Capital Markets group manages our investment activity in mortgage loans, mortgage-related securities and other investments, our debt financing activity, and our liquidity and capital positions.

Each business unit experienced an increase in its book of business in the third quarter as our new business acquisitions continued to outpace liquidations. Our mortgage credit book of business increased to $3.1 trillion on September 30, from $3.0 trillion on June 30 and from $2.9 trillion as of December 31, 2007. New business acquisitions — Fannie Mae MBS acquired by others and our mortgage portfolio purchases — declined in the third quarter to $126.9 billion from $199.1 billion in the second quarter. The decline in new business acquisitions reflected changes in our pricing and eligibility standards, which reduced our acquisition of higher-risk loans; changes in the eligibility standards of mortgage insurance companies, which further reduced our acquisition of loans with higher loan-to-value ratios; and lower levels of mortgage origination activity.

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Fannie Mae Third Quarter Results
Page Six

Single-Family Guaranty book of business grew by 1.3 percent during the third quarter to $2.8 trillion. Single-family guaranty fee income in the third quarter was $1.7 billion, down from $1.8 billion in the second quarter. Fannie Mae’s market share of new single-family mortgage-related securities issued decreased to an estimated 42 percent for the third quarter, compared with 45 percent for the second quarter. Single-family lost $14.2 billion in the quarter, driven in part by a 73 percent increase in credit-related expenses from the previous quarter to $9.2 billion, as noted above, and by a provision for federal income taxes driven by the deferred tax asset valuation allowance. Pre-tax, the segment lost $7.7 billion.

Housing and Community Development’s multifamily guaranty book of business grew by 4.2 percent in the third quarter to $169.8 billion, compared with $163.0 billion as of June 30. The segment’s guaranty fee income in the third quarter was $161 million, up from $134 million in the second quarter. Multifamily credit-related expenses were $26 million in the third quarter, compared with $10 million in the second quarter. The segment lost $2.6 billion in the quarter, driven largely by the provision for federal income taxes related to the deferred tax asset valuation allowance. Pre-tax, the segment lost $574 million.

Capital Markets’ net interest income in the third quarter was $2.3 billion, up from $2.0 billion in the second quarter. The mortgage investment portfolio balance rose to $744.7 billion as of September 30, compared with $737.5 billion as of June 30. The increase resulted from purchases of $45.4 billion, liquidations of $21.2 billion, and sales of $13.0 billion. Lower short-term interest rates were the primary driver of an increase in net interest yield on average interest-earning assets during the quarter, which in turn drove a significant increase in net interest income. The increase in net interest income was offset by investment and fair-value losses, and an $8.4 billion provision for federal income taxes related to the deferred tax asset valuation allowance. Capital Markets lost $12.2 billion in the quarter. Pre-tax, the segment lost $3.6 billion.

Conservatorship

On September 7, 2008, Henry M. Paulson, Jr., Secretary of Treasury, and James B. Lockhart III, Director of FHFA, announced several actions taken by Treasury and FHFA regarding Fannie Mae. Mr. Lockhart stated that they took these actions “to help restore confidence in Fannie Mae and Freddie Mac, enhance their capacity to fulfill their mission, and mitigate the systemic risk that has contributed directly to the instability in the current market.” These actions included the following:

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Fannie Mae Third Quarter Results
Page Seven

	•		Placing us in conservatorship;
	•		Eliminating our common and preferred dividends;
	•		The execution of a senior preferred stock purchase agreement by our conservator, on our behalf, and Treasury, pursuant to which we issued to Treasury both senior preferred stock and a warrant to purchase common stock. The agreement provided for up to $100 billion from Treasury to help ensure we maintain a positive net worth; and
	•		An agreement to establish a temporary secured lending credit facility that is available to us.

We provide a complete discussion of the conservatorship and our agreements with Treasury in the “Executive Summary” portion of our quarterly report on Form 10-Q for the period ended September 30, 2008.

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Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America’s secondary mortgage market to enhance the liquidity of the mortgage market by providing funds to mortgage bankers and other lenders so that they may lend to home buyers. In 2008, we mark our 70th year of service to America’s housing market. Our job is to help those who house America.

 

ANNEX I
FANNIE MAE
(In conservatorship)

Condensed Consolidated Balance Sheets
(Dollars in millions, except share amounts)
(Unaudited)

 

 

See Notes to Condensed Consolidated Financial Statements.

FANNIE MAE
(In conservatorship)

Condensed Consolidated Statements of Operations
(Dollars and shares in millions, except per share amounts)
(Unaudited)

 

 

See Notes to Condensed Consolidated Financial Statements.

FANNIE MAE
(In conservatorship)

Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
(Unaudited)

 

 

See Notes to Condensed Consolidated Financial Statements.

FANNIE MAE
(In conservatorship)

Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Dollars and shares in millions, except per share amounts)
(Unaudited)

 

 

See Notes to Condensed Consolidated Financial Statements.

 

Supplemental Non-GAAP Consolidated Fair Value Balance Sheets

 

 

 

See Explanation and Reconciliation of Non-GAAP Measures to GAAP Measures

Explanation and Reconciliation of Non-GAAP Measures to GAAP Measures