Fannie Mae to Announce Response to Adverse Market Conditions

About a month ago, we announced several credit-risk-based price increases for significantly under-priced portions of our business. Since then, we have seen an acceleration of adverse market conditions:



· The S&P/Case-Shiller® U.S. National Home Price Index showed a price decrease of 4.5% year-over-year for the third quarter, a second consecutive record decline;

· The inventory of existing single-family homes for sale is the highest since 1985;

· Credit default swaps and other spreads demonstrate that the market has little appetite for credit risk.



We don’t know how long these conditions will continue. Prices are volatile, which leads to losses, and in turn impacts capital – for all of us.



Seeing the further dramatic deterioration in the credit and capital markets in recent weeks, and the negative outlook for home prices, we have decided to take some additional steps in response to this adverse market. Later this week we intend to issue three announcements stating that we will:



1. Implement an Adverse Market Delivery Charge of 0.25% that will apply to all whole loans purchased or loans delivered into MBS with issue dates on or after March 1, 2008. The charge will apply to ALL loans, whether delivered via flow or deal, including Long-Term Standby Commitments, whole loan structured transactions, government loans, recourse loans, subprime loans, and reverse mortgages.

2. Reinstate a policy to limit maximum financing for properties in declining markets to 5 percentage points below the maximum LTV/CLTV otherwise allowed for a specific mortgage product.

3. Update our policy on interested-party contributions (IPCs) to change or clarify the types, calculation, and allowable uses of IPCs.



We intend to continue to operate smoothly and steadily as a reliable secondary market outlet in all parts of the country. To ensure that we are in a position to continue supporting you in these unstable times, we believe these additional steps are prudent and necessary.



We appreciate your support and your business as we weather this very tough environment together.