Fannie Mae

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Fannie Mae

• Daniel Pace
• Chris Humphrey
• Chad Colliander
• Ryan Hill

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Book Reference

• Fannie Mae is considered a mortgage bank. This
  type of financial institutions are discussed in
  chapter 13, on page 370 in our text.
• Our presentation will expand on the text to show
• What Fannie Mae is and how it is a unique
  quasi-government institution.
• How Fannie Mae works as a Financial institution.
• Summarize Fannie Maes current financial
  problems.

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What is Fannie Mae?

• Created in 1938 to increase mortgage
  availability.
• Formed by the government, but it is an
  independent and self sustaining company.
• Operates under a congressional charter to
  increase availability and affordability of home
  ownership for moderate Americans.

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• Second largest financial institution in the
  United States.
• More than 1 trillion in assets.
• Owns or guarantees more than ¼ of all residential
  mortgages in America.
• One the Nations largest taxpayers.
• One of the most consistently profitable
  corporations in America.

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Fannie Maes Mission

• Their mission, and their ultimate goal, is to
  help more families achieve homeownership.

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What does Fannie Mae Do?

• Operates in the Secondary Mortgage Market.
• They purchase mortgages from lenders and hold
  those mortgages in their portfolio. The lenders,
  in turn can use that money to make more mortgages
  for more home buyers.
• They issue what are known as Mortgage-Backed
  Securities (MBS) in exchange for pools of
  mortgages from lenders. These MBS provide the
  lenders with a more liquid asset to hold or sell.

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What are Mortgage Backed Securities?

• A mortgage-backed security (MBS) is a security
  that is based on a pool of underlying mortgages.
  MBS are usually based on mortgages that are
  guaranteed by a government agency for payment of
  principal and a guarantee of timely payment.

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Financial issues at Fannie Mae

• The OFHEO alleges that they smoothed financial
  results to make earnings appear less volatile.
• Deferred 200 million in expenses in 1998.
• Deferring the money helped top executives receive
  27 million in bonuses.

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• These manipulated accounting practices could go
  back as far as 1998.
• Earnings may be overstated due to these faulty
  accounting procedures.

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Illicit Intent

• Charges hinge upon managements intent in
  deferring expenses.
• Fannie Maes innocence lies in proving that
  deferred expenses were not all done for the sake
  of bonuses.

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Past 3 month stock price
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Changes to be made

• Improve accounting standards
• Stronger internal controls
• OFHEO will oversees dividend increases
• accounting chain of command changes

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Questions?
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Sources used

• The Wall Street Journal
• Business Week
• http//www.fanniemae.com/index.jhtml
• www.msnbc.com
• MSN Money central
• Yahoo Finance
• The Motley Fool

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Test Questions

• 1. Fannie Mae operates in the Primary Mortgage
  Market. True or False
• 2. Fannie Mae is the second largest financial
  institution in the United States. True or False.