UNITED STATES OF AMERICA 


SECURITIES AND EXCHANGE COMMISSION 


NON-PROSECUTION AGREEMENT 

1. This agreement arises out of an investigation by the Division of Enforcement (the 

"Division") of the United States Securities and Exchange Commission (the "Commission") into 

possible violations of the federal securities laws by the Federal National Mortgage Association 

(the "Respondent" or "Fannie Mae") and others that occurred in or about December 2006 

through September 6, 2008, arising from, among other things, public statements concerning 

Fannie Mae's exposure to SUbprime and Alt-A mortgages (collectively, the "Investigation"). 

Prior to a public enforcement action being brought by the Commission against Fannie Mae, 

without admitting or denying liability, Respondent has offered to accept responsibility for its 

conduct and to not dispute, contest, or contradict the factual statements set forth in Exhibit A, as 

specifically provided herein. Accordingly, the Commission and the Respondent enter into this 

Non-Prosecution Agreement (the "Agreement"). 

2. The Respondent is a corporation organized and operated under the laws of the United 

States of America, subject to the ongoing supervision of the Federal Housing Finance Agency 

("FHF A"). On September 6, 2008, FHF A placed the Respondent into conservatorship, and as 

conservator, succeeded to all rights, titles, powers and privileges of the Respondent and its 

shareholders, officers, and directors with respect to the Respondent and its assets. As 

conservator, FHF A maintains a continuous on-site presence at the Respondent and provides 

substantial oversight over the Respondent, including, among other things, with respect to its 

corporate governance, regulatory compliance and operations. In addition, the United States 

Treasury has made substantial capital investments in the Respondent and holds senior preferred 

stock, as well as warrants representing an ownership stake of up to 79.9 percent of the 

Respondent's common stock. 

3. In entering into this Agreement, the Commission recognizes the unique circumstances 

presented by the Respondent's current status, including the financial support provided to the 

Respondent by the US. Treasury, the role of another government agency (FHFA) as conservator, 

and the costs that may be imposed on US. taxpayers. Based on these circumstances and in 

consideration of the public interest, subject to the full, truthful, and continuing cooperation of the 

Respondent as described below and its satisfactory performance of all obligations and 

undertakings herein, the Commission and Respondent enter into this Agreement with the terms 

and conditions contained herein. 

COOPERATION 

4. The Respondent agrees to cooperate fully and truthfully in the Investigation and any 

other related enforcement litigation or proceeding to which the Commission is a party (the 

"Proceedings"), without regard to the time period in which the cooperation is required 

("Cooperation Period"). In addition, the Respondent agrees to cooperate fully and truthfully, 

when directed by the Division's staff, in any other related official investigation or proceeding by 

any US. federal agency (the "Other Proceedings"). The Respondent acknowledges and 

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understands that its ongoing cooperation with the Commission is an important and material 

factor underlying the Commission's decision to enter into this Agreement. The full, truthful, and 

continuing cooperation ofthe Respondent shall include, but not be limited to: 

a. identifying, assembling, organizing and producing, in a responsive and prompt 

manner, all non-privileged, non-attorney work-product documents, information, and other 

materials (including but not limited to providing reports or analyses of data concerning 

Respondent's models, credit risk reporting or data systems) to the Commission as requested by 

the Division's staff, wherever located, in the possession, custody, or control of the Respondent; 

b. providing declarations authenticating all documents, information, and other 

materials produced to the Commission by Respondent upon request by the Division's staff; 

c. providing declarations, upon request by the Division's staff, certifying that 

documents, information, and other materials produced to the Commission by Respondent 

comply with Federal Rule of Evidence 902(11)(A-C); 

d. providing Federal Rule of Civil Procedure 30(b)(6) witnesses, and authenticating 

documents, for the purpose of establishing the facts set forth in Exhibit A; 

e. using its best efforts to secure the full, truthful, and continuing cooperation, as 

defined in Paragraph 5, of Fannie Mae's current and former board members, officers, employees 

and agents, including making these persons available, when requested to do so by the Division's 

staff, for interviews and the provision oftestimony in the investigation, deposition, trial and 

other judicial proceedings in connection with the Proceedings or Other Proceedings; 

f. authenticating all documents, information, and other materials identified by the 

Division's staff, to the extent able to do so; 

g. responding to all inquiries, when requested to do so by the Division's staff, in 

connection with the Proceedings or Other Proceedings; 

h. producing to the Commission, in a responsive and prompt manner, any 

documents, information and materials not previously produced to the Commission that are 

provided formally or informally to any party for use in the Proceedings or Other Proceedings at 

the request of such party or otherwise; 

i. notifying the Division's staff, in a prompt manner, ofthe receipt and substance of 

any request for documents, information or materials by a party to the Proceedings or Other 

Proceedings or the scheduling or facilitation of interviews or meetings between parties to the 

Proceedings or Other Proceedings (or their counsel) and any of Fannie Mae's current and former 

board members, officers, employees and agents in connection with the Proceedings or Other 

Proceedings; 

j. maintaining the confidentiality of communications with the Division's staff 

relating to the cooperation required under paragraphs a-i above, and refusing to enter into, not 

entering into, modifying or withdrawing from existing formal or informal joint-defense 

agreements or arrangements with any person relating to the Proceedings or Other Proceedings to 

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the extent such agreements limit Respondent's ability to provide or share information with the 

Commission; and, 

k. providing appropriate assistance to the Commission to obtain documents or other 

information necessary for the Commission to assess and respond to defenses raised in the 

Proceedings or Other Proceedings. 

5. The full, truthful, and continuing cooperation of each person described in Paragraph 4( e ) 

above will be subject to the procedures and protections ofthis Paragraph, and shall include, but 

not be limited to: 

a. producing all non-privileged documents, information, and other materials as 

requested by the Division's staff;· 

b. appearing for interviews, at such times and places as requested by the Division's 

staff; 

c. authenticating all documents, information, and other materials identified by the 

Division's staff, to the extent able to do so; 

d. responding to all inquiries, when requested to do so by the Division's staff, in 

connection with the Proceedings or Other Proceedings; and, 

e. testifying at deposition, at trial and in other judicial proceedings, when requested 

to do so by the Division's staff, in connection with the Proceedings or Other Proceedings. 

STATUTE OF LIMITATIONS 

6. The Respondent agrees that the running of any statute of limitations applicable to any 

action or proceeding against it authorized, instituted, or brought by or on behalf of the 

Commission arising out of the Investigation (the "Enforcement Proceeding"), including any 

sanctions or relief that may be imposed therein, is tolled and suspended during the Cooperation 

Period. 

a. The Respondent and any of its attorneys or agents shall not include the 

Cooperation Period in the calculation of the running of any statute of limitations or for any other 

time-related defense applicable to the Enforcement Proceeding, including any sanctions or relief 

that may be imposed therein, in asserting or relying upon any such time-related defense. 

b. This agreement shall not affect any applicable statute of limitations defense or any 

other time-related defense that may be available to Respondent before the commencement of the 

Cooperation Period or be construed to revive an Enforcement Proceeding that may be barred by 

any applicable statute of limitations or any other time-related defense before the commencement 

ofthe Cooperation Period. 

c. The running of any statute of limitations applicable to the Enforcement 

Proceeding shall commence again after the end ofthe Cooperation Period, unless there is an 

extension ofthe tolling period executed in writing by or on behalf ofthe parties hereto. 

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d. This agreement shall not be construed as an admission by the Commission 

relating to the applicability of any statute of limitations to the Enforcement Proceeding, including 

any sanctions or relief that may be imposed therein, or to the length of any limitations period that 

may apply, or to the applicability of any other time-related defense. 

UNDERTAKINGS 

7. During the Cooperation Period, the Respondent understands and agrees to perform the 

following undertakings: 

a. to provide written notification to the Division, within five days, if it has been 

questioned in the context of an investigation, charged, or convicted of an offense related to the 

securities laws by any federal, state, or local law enforcement organization or regulatory agency; 

and 

b. to submit a report to the Division detailing its efforts to identify and implement 

improved disclosure procedures since being placed into conservatorship on September 6,2008, 

and, if requested, to meet with the Division's staff to discuss the report and its progress with 

respect to its obligations pursuant to this Agreement. 

PUBLIC STATEMENTS 

8. The Respondent agrees not to take any action or to make or permit any public statement 

through present or future attorneys, employees, agents, Or other persons authorized to speak for it 

("Related Person"), except in legal proceedings in which the Commission is not a party, denying, 

directly or indirectly, any aspect of this Agreement or creating the impression that the statements 

in Exhibit A to this Agreement are without factual basis. This paragraph is not intended to apply 

to any statement made by an individual in the course of any criminal, civil, or regulatory 

proceeding initiated by the government or self-regulatory organization against such individual, 

unless such individual is speaking on behalf of the Respondent. 1 If it is determined by the 

Commission that a public statement by the Respondent or any Related Person contradicts in 

whole or in part this Agreement, at its sole discretion, the Commission may bring an 

enforcement action in accordance with Paragraphs 15 through 18, but only provided that 

Respondent does not cure the statement by promptly making appropriate public statements or 

court filings satisfactory to the Commission after a reasonable opportunity to do so by the 

Commission. 

9. Prior to issuing any press release concerning this Agreement, the Respondent agrees to 

have the text of the release approved by the staff of the Division. 

Nothing in this Agreement affects Respondent's and Related Person's (i) testimonial obligations or (ii) right to 

take legal or factual positions in litigation or other legal proceedings in which the Commission is not a party. 

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SERVICE 


10. The Respondent agrees to serve by hand delivery or by next-day mail all written notices 

and correspondence required by or related to this Agreement to Charles Cain, Assistant Director, 

100 F Street, N.E., Washington, D.C. 20549 «202) 551-4911), unless otherwise directed in 

writing by the staff of the Division. 

VIOLATION OF AGREEMENT 

11. The Respondent understands and agrees that it shall be a violation of this Agreement if it 

knowingly provides false or misleading information or materials in connection with the 

Proceedings or Other Proceedings. In the event of such misconduct, the Division will advise the 

Commission of the Respondent's misconduct and may make a criminal referral for providing 

false information (18 U.S.C. § 1001), contempt (18 U.S.c. §§ 401-402) and/or obstructing 

justice (18 U.S.C. § 1503 et seq.). 

12. The Respondent understands and agrees that should the Division determine that the 

Respondent has failed materially to comply with any term or condition of this Agreement, the 

Division will notify the Respondent or its counsel of the fact and provide an opportunity for the 

Respondent to make a Wells submission pursuant to the Securities Act of 1933 Release No. 

5310. Under these circumstances, the Division may, in its sole discretion and not subject to 

judicial review, recommend to the Commission an enforcement action against the Respondent 

for any securities law violations, including, but not limited to, the substantive offenses relating to 

the Investigation. 

13. The Respondent understands and agrees that in any future enforcement action resulting 

from its violation of the Agreement, any documents, statements, information, testimony, or 

evidence provided by it during the Investigation, Proceedings or Other Proceedings, and any 

leads derived there from, may be used against it in future legal proceedings. 

14. In the event it breaches this Agreement, the Respondent agrees not to dispute, contest, or 

contradict the factual statements contained in Exhibit A, or their admissibility, in any future 

Commission enforcement action against it. 

COMPLIANCE WITH AGREEMENT 

15. Subject to the full, truthful, and continuing cooperation of the Respondent, as described 

in Paragraphs 4 and 5, and compliance by Respondent with all obligations and undertakings in 

this Agreement, the Commission agrees not to bring any enforcement action or proceeding 

against the Respondent arising from the Investigation. This Agreement should not, however, be 

deemed to exonerate the Respondent or be construed as a finding by the Commission that 

violations of the federal securities laws have not occurred. 

16. The Respondent understands and agrees that this Agreement does not bind other U.S. 

federal, state or self-regulatory organizations, but the Commission may, at its discretion, issue a 

letter to these organizations detailing the fact, manner, and extent of its cooperation during the 

Proceedings or Other Proceedings, upon the written request of the Respondent. 

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17. The Respondent understands and agrees that if it sells, merges, or transfers all or 

substantially all of its business operations as they exist as of the date of this Agreement, whether 

such a sale is structured as a stock or asset sale, merger, or transfer during the Cooperation 

Period, it shall include in any contract for sale, merger, or transfer a provision binding the 

purchaser or successor in interest to the obligations set forth in this Agreement. 

18. The Respondent understands and agrees that the Agreement only provides protection 

against enforcement actions arising from the Investigation and does not relate to any other 

violations, or to any individual or entity other than the Respondent. 

VOLUNTARY AGREEMENT 

19. The Respondent's decision to enter into this Agreement is freely and voluntarily made 

and is not the result of force, threats, assurances, promises, or representations other than those 

contained in this Agreement. 

20. The Respondent has read and understands this Agreement. Furthermore, the Respondent 

has reviewed all legal and factual aspects of this matter with its attorney and is fully satisfied 

with its attorney's legal representation. The Respondent has thoroughly reviewed this 

Agreement with its attorney and has received satisfactory explanations concerning each 

paragraph ofthe Agreement. After conferring with its attorney and considering all available 

alternatives, the Respondent has made a knowing decision to enter into the Agreement. 

21. The Respondent represents that its Board of Directors has duly authorized, in the 

resolution attached as Exhibit B to this Agreement, the execution and delivery of this Agreement, 

and that the person signing this Agreement has authority to bind the Respondent. 

ENTIRETY OF AGREEMENT 

22. This Agreement constitutes the entire agreement between the Commission and the 

Respondent, and supersedes all prior understandings, if any, whether oral or written, relating to 

the subject matter herein. 

23. This Agreement cannot be modified except in writing, signed by the Respondent and an 

authorized representative of the Commission. 

24. This agreement may be executed in counterparts. 

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25. In the event an ambiguity or a question of intent or interpretation arises, this Agreement 

shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of 

proof shall arise favoring or disfavoring the Commission or the Respondent by virtue of the 

authorship of any of the provisions of the Agreement. 

The signatories below acknowledge acceptance of the foregoing terms and conditions. 

RESPONDENT: 

011 

3900 Wisconsin Avenue NW 

Washington, DC 

20016 

,Fannie Mae 

Attached hereto is the Certificate of the Secretary to the Board of Directors of Federal National 

Mortgage Association, certifying that Michael J. Williams is, and at the time of the signing and 

delivery of the Agreement was, the duly appointed, qualified and acting Chief Executive Officer 

of Fannie Mae and duly authorized to execute the Agreement on behalf of Fannie Mae, and that 

the signature of Michael 1. Williams appearing on the Agreement is his genuine signature. 

RESPONDENT'S COUNSEL: 

Approved as to form: 

1875 Pennsylvania Avenue NW 

Washington, D.C. 20006 

SECURITIES AND EXCHANGE COMMISSION 

DIVISION OF ENFORCEMENT: 

Director, Enforcement Division 

United States Securities and Exchange 

Commission 

100 F Street, N.E. 

Washington, D.C. 20549 

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EXHIBIT A 


STATEMENT OF FACTS 

Fannie Mae 

1. 	 Federal National Mortgage Association ("Fannie Mae") is a government-sponsored 

enterprise that was chartered by Congress in 1938 to support liquidity, stability and 

affordability in the secondary mortgage market, where existing mortgage-related assets 

are purchased and sold. Fannie Mae provides market liquidity by securitizing mortgage 

loans originated by lenders in the primary mortgage market into Fannie Mae mortgagebacked securities ("MBS"), known as Fannie Mae MBS, and purchasing mortgage loans 

and mortgage-related securities in the secondary market for its mortgage portfolio. In or 

about February 2008, Fannie Mae began reporting billion-dollar credit losses resulting 

from its portfolio of mortgage-related assets and guaranty contracts. For the period 

January 1, 2007 through March 31, 2011, Fannie Mae reported cumulative net losses of 

$153.2 billion. 

2. 	 From 1992 until July 30,2008, Fannie Mae's primary regulator was the Office of Federal 

Housing Enterprise Oversight ("OFHEO"). 

3. 	 On July 30,2008, when the President signed into law the Housing and Economic 

Recovery Act of2008, the Federal Housing Finance Agency ("FHFA") became Fannie 

Mae's primary regulator. On September 6, 2008, FHF A placed Fannie Mae into 

conservatorship, and as conservator succeeded to all rights, titles, powers and privileges 

of Fannie Mae, its shareholders, and the officers or directors of Fannie Mae with respect 

to the company and its assets. 

4. 	 On July 8, 2010, Fannie Mae's common stock was delisted from the New York Stock 

Exchange and the Chicago Stock Exchange. Fannie Mae's common stock currently is 

traded in the over-the-counter market and quoted on the OTC Bulletin Board under the 

ticker symbol "FNMA." Fannie Mae's debt securities are actively traded in the over-thecounter market. 

5. 	 From December 6, 2006 through November 10,2008 (the "Relevant Period"), Fannie 

Mae provided mortgage credit risk disclosures in its periodic filings and other filings with 

the Securities and Exchange Commission (the "Commission") relating to Fannie Mae's 

single-family mortgage credit book of business, which consisted of whole single-family 

mortgage loans and Fannie Mae MBS backed by single-family mortgage loans (whether 

held in its portfolio or by third parties). 

6. 	 During the Relevant Period, Fannie Mae provided disclosures regarding its exposure to 

Alt-A and subprime mortgage loans in its single-family mortgage credit book of business. 

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Subprime Disclosures 

7. 	 On February 27,2007 Fannie Mae provided its first public quantitative disclosure of its 

exposure to subprime mortgage loans in a 12b-25 filing with the Commission (the 

"February 2007 12b-25 Filing"). 

8. 	 The February 2007 12b-25 Filing stated that "[a]lthough there is no uniform definition 

for sUb-prime and Alt-A loans across the mortgage industry, Alt-A loans are generally 

defined as loans with lower or alternative documentation requirements, while sUb-prime 

loans typically are made to borrowers with weaker credit histories." The February 2007 

12b-25 Filing further stated: 

• 	 "We estimate that approximately 0.2% of our single-family mortgage 

credit book of business as of December 31, 2006 consisted of sub-prime 

mortgage loans or structured Fannie Mae MBS backed by sub-prime 

mortgage loans." 

• 	"We estimate that approximately 2% of our single-family mortgage credit 

book of business as of December 31, 2006 consisted of private-label 

mortgage-related securities backed by sub-prime mortgage loans and, to a 

lesser extent, resecuritizations of private-label mortgage-related securities 

backed by sub-prime mortgage loans." 

9. 	 During the Relevant Period, one of Fannie Mae's primary mortgage loan products 

targeted towards borrowers with weaker credit histories was called Expanded 

ApprovaVTimely Payment Rewards ("EA"). As of December 31, 2006, the percentage 

ofEA loans held on Fannie Mae' book of business was 1.8%. 

10. The Unpaid Principal Balance ("UPB") ofEA loans owned or securitized by Fannie Mae 

in its single-family mortgage credit book of business was $39.7 billion as of December 

31,2005, $43.3 billion as ofDecember 31,2006, and $55.6 billion as of December 31, 

2007. The UPB ofloans Fannie Mae classified and disclosed as subprime, which it 

owned or securitized in its single-family mortgage credit book of business, was $2.3 

billion as of December 31,2005, $4.8 billion as of December 31,2006, and $8.3 billion 

as of December 31,2007. In addition to EA, Fannie Mae had other mortgage loan 

programs, such as My Community Mortgage ("MCM") that served low-to-moderate 

income borrowers, including borrowers with weaker credit histories. 

11. In anticipation of communications with investors in March, 2004, Fannie Mae's thenChief Executive Officer ("CEO") received a document listing questions and answers 

("Q&A") relating to Fannie Mae's business. That document stated in part: " .... 

Delinquencies in the subprime market have been rising. What is Fannie Mae's exposure 

to subprime loans? Does subprime include Alt-A loans? ANSWER [:] Our strong risk 

management tools and practices have enabled expansion of Fannie Mae's product 

offerings to include products targeted to borrowers with minor credit blemishes. The 

most notable product line for reaching these borrowers, Expanded Approval with Timely 

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Payment Rewards, has grown in volume but represents less than two percent of Single 

Family credit portfolio." Further, in March of2005, Fannie Mae's CEO was provided 

with a Q&A that stated in part: " .... Delinquencies in the subprime market have been 

rising. What is Fannie Mae's exposure to subprime loans? Does subprime include Alt-A 

loans? ANSWER [:] Fannie Mae's subprime exposure primarily consists of our own 

product line for serving credit-impaired borrowers-the Expanded Approval with Timely 

Payment Rewards product, and mortgage related securities backed by subprime loans that 

we hold in our mortgage portfolio ... " 

12. Prior to the February 2007 12b-25 Filing, in April 2005 and April 2006, in response to 

requests for information on Fannie Mae single-family subprime loans, Fannie Mae 

provided OFHEO with data and information on mortgage loan purchases and mortgage 

loan securities under its EA program and described the EA loans as its "most significant 

initiative to serve credit-impaired borrowers." 

13. EA loans were not included in Fannie Mae's calculation or quantification of its subprime 

mortgage loans or other subprime exposure set forth in Fannie Mae's February 2007 12b25 Filing. 

14. In its February 2007 12b-25 Filing, Fannie Mae publicly disclosed that its subprime 

exposure as of December 31, 2006 was approximately 2.2% of its single-family mortgage 

credit book of business, of which approximately 0.2% ($4.8 billion) consisted of 

subprime mortgage loans or structured Fannie Mae MBS backed by subprime mortgage 

loans. Fannie Mae's exposure to EA loans in its single-family mortgage credit book of 

business was approximately $43.3 billion as of December 31, 2006. 

15. During the Relevant Period, Fannie Mae tracked the serious delinquency rate ("SDQ 

Rate") of its mortgage loan products in order to measure the credit risk of its loan 

portfolio. Fannie Mae defined SDQ as a loan that is 90 days or more past due and loans 

that are in the process of foreclosure. Generally, the higher the SDQ Rate of loans, the 

higher the credit risk of those loans. As Fannie Mae stated in its 2004 Form 10-K: "The 

SDQ is an indicator of potential future foreclosures, although most loan that become 

seriously delinquent do not result in foreclosure. The rate at which new loans become 

seriously delinquent and the rate at which existing seriously delinquent loans are resolved 

significantly affect the level of future credit losses." 

16. Internal reports show that Fannie Mae's publicly disclosed subprime loans had an SDQ 

rate of 4.72% as of December 31, 2006, and Fannie Mae's EA loans had an SDQ rate of 

5.57% as of December 31,2006. 

17. During the Relevant Period, information described in paragraphs 7-16 above was 

provided and/or available to senior executives, including Fannie Mae's CEO, Fannie 

Mae's Executive Vice President for its Single Family business ("Single Family EVP"), 

and its Chief Risk Officer ("CRO") through internal reports, presentations, and briefings. 

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18. The CEO, the Single Family EVP and the CRO each reviewed and approved the 

February 2007 12b-25 Filing. 

19. On May 2,2007, Fannie Mae filed its 2005 Form 10-K with the Commission (the "May 

2,2007 10-K Filing"). This filing stated "'Subprime mortgage' generally refers to a 

mortgage loan made to a borrower with a weaker credit profile than that of a prime 

borrower. As a result ofthe weaker credit profile, subprime borrowers have a higher 

likelihood of default than prime borrowers. Subprime mortgage loans are often originated 

by lenders specializing in this type of business, using processes unique to subprime loans. 

In reporting our subprime exposure, we have classified mortgage loans as subprime if the 

mortgage loans are originated by one of these specialty lenders or, for the original or 

resecuritized private-label, mortgage-related securities that we hold in our portfolio, if the 

securities were labeled as subprime when sold." 

20. In the May 2,2007 10-K Filing, Fannie Mae also stated that "subprime loans represented 

approximately 2.2% of our single-family mortgage credit book of business as of 

December 31,2006, of which approximately 0.2% consisted of sub prime mortgage loans 

or structured Fannie Mae MBS backed by subprime mortgage loans and approximately 

2% consisted of private-label mortgage-related securities backed by subprime mortgage 

loans and, to a lesser extent, resecuritizations ofprivate-label mortgage-related securities 

backed by subprime mortgage loans." 

21. The calculation and quantification of Fannie Mae's subprime mortgage loans or other 

subprime exposure set forth in the May 2,2007 10-K Filing did not include Fannie Mae's 

exposure to EA loans. As of December 31, 2006, the percentage of EA loans held on 

Fannie Mae's single-family mortgage credit book of business was 1.8%. 

22. During the Relevant Period, the Department of Housing and Urban Development 

provided a list of lenders specializing in the subprime business (the "HUD Subprime 

Lender List"). As of December 31, 2006, the HUD Subprime Lender List consisted of 

210 subprime lenders. 

23. In calculating and quantifying its subprime loans and other subprime exposure as 

disclosed in the May 2,2007 10-K Filing, Fannie Mae did not use the HUD Subprime 

Lender List to identify lenders "specializing in this type of business" and included loans 

only from fifteen loan originators. Fannie Mae did not publicly disclose that loans from 

only fifteen originators were considered when calculating its subprime exposure or the 

names of those originators. 

24. During the Relevant Period, Fannie Mae purchased and securitized loans from lenders on 

the HUD Subprime Lender List but did not include those loans when calculating or 

quantifying its subprime loans. 

25. On May 2,2007, Fannie Mae's CEO certified the May 2,2007 lO-K Filing. The 

certification stated, among other things: 

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a. 	 [T]his report does not contain any untrue statement of a material fact or omit to state 

a material fact necessary to make the statements made, in light of the circumstances 

under which such statements were made, not misleading with respect to the period 

covered by this report; and 

b. 	 [T]he financial statements, and other financial information included in this report, 

fairly present in all material respects the financial condition, results of operations and 

cash flows of the registrant as of, and for, the periods presented in this report. 

26. The Single Family EVP and the CRO signed sub-certifications for the May 2,2007 10-K 

Filing. Those sub-certifications stated, among other things: 

a. 	 [T]he Report does not contain any untrue statement of a material fact or omit to state 

a material fact necessary to make the statements made, in light of the circumstances 

under which such statements were made, not misleading with respect to the periods 

covered by the Report. 

b. 	 [T]he financial statements, and other financial information included in the Report, 

fairly present in all material respects the financial condition, results of operations and 

cash flows of the business segments for which I am responsible as of, and for, the 

periods presented in the Report. 

27. On August 16,2007, Fannie Mae provided a virtually identical subprime definition and 

the same subprime quantitative exposure amounts in its 2006 Form 10-K filed with the 

Commission (the "August 2007 10-K Filing") as it did in its May 2,2007 10-K Filing. 

28. Fannie Mae's calculation and quantification of its subprime loans or other subprime 

exposure set forth in the August 2007 lO-K Filing did not include its EA loans. 

29. On August 16,2007, simultaneous with filing its 2006 10-K, Fannie Mae filed an 8-K 

credit supplement (the "August 2007 Credit Supplement Filing"), which disclosed that, as 

of June 30, 2007, 1 % of its single family mortgage credit book of business consisted of 

loans with both a FICO Score below 620 and Original-Loan-To-Value ("OLTV") Greater 

than 90% (the "Low FICOlHigh OLTV Loans"). 

30. As of June 30, 2007, only 15.5% ofthe EA loans had both a FICO score below 620 and 

an OLTV greater than 90%. 

31. During the Relevant Period, information described in paragraphs 19-30 was provided 

and/or available to the CEO, the Single Family EVP and the CRO through internal 

reports, presentations, and briefings. 

32. The CEO certified the August 2007 lO-K Filing and reviewed and approved the August 

2007 Credit Supplement Filing. The certification was substantially similar to the 

representations set forth above in Paragraph 25. 

33. The Single Family EVP and the CRO sub-certified the August 2007 lO-K Filing. Those 

sub-certifications were substantially similar to the representations set forth above in 

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Paragraph 26. The Single Family EVP and the CRO reviewed and approved the August 

2007 Credit Supplement Filing. 

34. On November 9,2007, Fannie Mae simultaneously filed its first, second, and third 

quarter 2007 Form 10-Q filings with the Commission (the "November 2007 10-Q 

Filings"). 

35. Each of the November 2007 10-Q Filings stated: "A subprime mortgage loan generally 

refers to a mortgage loan made to a borrower with a weaker credit profile than that of a 

prime borrower. As a result of the weaker credit profile, subprime borrowers have a 

higher likelihood of default than prime borrowers. Subprime mortgage loans are typically 

originated by lenders specializing in this type of business or by subprime divisions of 

large lenders, using processes unique to subprime loans. In reporting our subprime 

exposure, we have classified mortgage loans as subprime if the mortgage loans are 

originated by one of these specialty lenders or a subprime division of a large lender." 

36. During the Relevant Period, Fannie Mae did not keep separate statistical reports or 

otherwise track loans made by the subprime division of originators. It therefore could not 

quantify the number of loans it acquired or securitized that were originated by the 

subprime division of a large lender. 

37. Throughout most ofthe Relevant Period, Fannie Mae's largest customer was 

Countrywide Financial Corporation. Countrywide's retail subprime lending division was 

known as Full Spectrum Lending. 

38. Records indicate that Fannie Mae purchased or securitized $7.7 billion worth ofloans 

originated by Full Spectrum Lending in 2006, $13.2 billion in 2007, and $7.6 billion in 

2008. 

39. During the Relevant Period, Fannie Mae purchased or securitized loans from other 

subprime divisions of large lenders. 

40. In the November 2007 10-Q Filings, Fannie Mae stated that approximately 0.2% of its 

total single-family mortgage credit book of business as of March 31, 2007 and June 30, 

2007 consisted of subprime mortgage loans or Fannie Mae MBS backed by subprime 

mortgage loans and that this percentage increased to approximately 0.3% as of 

September 30,2007. Fannie Mae also disclosed that less than 1 % of its single-family 

business volume for the nine months ended September 30, 2007 consisted of subprime 

mortgage loans or Fannie Mae MBS backed by subprime mortgage loans. 

41. In Fannie Mae's single family mortgage credit book of business, the dollar amount ofthe 

subprime loans and other subprime exposure as disclosed in each of Fannie Mae's 

February 2007 12b-25 Filing, May 2,2007 lO-K Filing, August 2007 10-K Filing or 

November 2007 10-Q Filings did not exceed $8.3 billion. 

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42. Fannie Mae's quantitative subprime disclosure in the November 2007 lO-Q Filings did 

not include its exposure to EA loans. Fannie Mae's quantitative exposure to EA loans for 

the periods covered by the Form 10-Qs was at least $43 billion. 

43. On November 9,2007, Fannie Mae provided disclosure of its exposure to loans that were 

both Low FICOlHigh OLTV in its Form 8-K Credit Supplement that it filed concurrent 

with its November 2007 10-Q Filings with the Commission (the "November 2007 8-K 

Filings"). 

44. Fannie Mae's calculation and quantification of its exposure to loans that were both Low 

FICO/High OLTV in the November 2007 8-K Filings did not include all of its EA loans. 

45. During the Relevant Period, members of Fannie Mae's senior management were provided. 

with information indicating that Fannie Mae purchased and securitized loans from 

subprime divisions oflarge lenders such as Countrywide'S Full Spectrum Lending. For 

example, in a February 2007 meeting, the then-CEO received a presentation on the 

volume of agency-eligible loans from each of Countrywide'S four lending divisions, 

including Full Spectrum Lending. 

46. The CEO certified the November 2007 10-Q Filings and reviewed and approved the 

November 2007 8-K Filings. The Single Family EVP and the CRO sub-certified the 

November 2007 10-Q Filings. The Single Family EVP and the CRO reviewed and 

approved the November 2007 8-K Filings. 

47. Post-conservatorship, on November 10,2008, in its third quarter Form 10-Q ("November 

2008 10-Q Filing"), Fannie Mae disclosed for the first time that certain loans with 

features similar to subprime loans were not included in the calculation or quantification 

of Fannie Mae's subprime exposure. The November 2008 10-Q Filing stated in part: 

"We have classified mortgage loans as subprime if the mortgage loan is originated by a 

lender specializing in subprime business or by subprime divisions of large lenders. We 

apply these classification criteria in order to determine our ... subprime loan exposures; 

however, we have other loans with some features that are similar to ... subprime loans 

that we have not classified as ... subprime because they do not meet our classification 

criteria. " 

48. On February 24,2011, in its Form 10-K for the fiscal year 2010, Fannie Mae stated for 

the first time: "We exclude from the subprime classification loans originated by these 

lenders if we acquired the loans in accordance with our standard underwriting criteria, 

which typically require compliance by the seller with our Selling Guide (including 

standard representations and warranties) and/or evaluation of the loans through our 

Desktop Underwriter system." 

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Alt-A Disclosures 

49. In its February 2007 12b-25 Filing, Fannie Mae stated that Alt-A loans "are generally 

defined as loans with lower or alternative documentation requirements." 

50. Prior to May 2, 2007, Fannie Mae did not quantify its exposure to Alt-A loans in its 

public filings with the SEC or in other disclosures provided to investors. 

51. Fannie Mae increased its acquisition ofreduced documentation loans in its conventional 

single family mortgage guarantee business from at least 17.8% percent of new 

acquisitions in 2004 to at least 27.8% of new acquisitions in 2006. 

52. From December 6,2006 through May 31,2008, according to internal Fannie Mae loan 

acquisition data reports, at least 25% of Fannie Mae's loan acquisitions in its 

conventional single family mortgage guarantee business were reduced documentation 

loans. 

53. On May 9,2007, for the first time in a public filing, Fannie Mae quantified its exposure 

to Alt-A loans in a 12b-25 filed with the Commission (the "May 9,2007 12b-25 Filing"). 

54. In the May 9,2007 12b-25 Filing, Fannie Mae stated that in reporting "Alt-A exposure, 

we have classified mortgage loans as Alt-A ifthe lenders that deliver the mortgage loans 

to us have classified the loans as Alt-A based on documentation or other product features, 

or, for the original or resecuritized private-label, mortgage-related securities that we hold 

in our portfolio, if the securities were labeled as Alt-A when sold. We estimate that 

approximately 11 % of our total single-family mortgage credit book of business as of both 

March 31, 2007 and December 31, 2006 consisted of Alt-A mortgage loans or structured 

Fannie Mae MBS backed by Alt-A mortgage loans." 

55. Fannie Mae had a coding system to identify the loan characteristics for certain mortgages 

("Special Feature Codes"). Loan sellers in the lender channel were instructed by Fannie 

Mae to use certain Special Feature Codes in delivering loans to Fannie Mae. Thus, Fannie 

Mae's coding system determined those loans that such sellers classified as Alt-A. 

56. In calculating its Alt-A exposure, Fannie Mae excluded what it classified as lenderselected loans ("Lender-Selected Reduced Documentation Loans"). 

57. During the Relevant Period, Fannie Mae did not publicly disclose that it excluded 

Lender-Selected Reduced Documentation Loans from its reported Alt-A exposure. 

58. At times during the Relevant Period, Lender-Selected Reduced Documentation Loans 

had an SDQ Rate that was on average 1.4 times higher than Fannie Mae's full 

documentation loans with a similar credit risk profile. 

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59. As of March 31,2007, at least 17.9% of Fannie Mae's total conventional single-family 

mortgage guarantee business consisted of reduced documentation mortgage loans or 

structured Fannie Mae MBS backed by reduced documentation mortgage loans. 

60. During the Relevant Period, information described in paragraphs 49-59 was provided 

and/or available to the CEO, the Single Family EVP and the CRO through internal 

reports, presentations, and/or briefings. 

61. Fannie Mae's CEO certified periodic filings during the Relevant Period that included 

Fannie Mae's Alt-A disclosures. Those certifications were substantially similar to the 

representations set forth above in Paragraph 25. 

62. The Single Family EVP and Fannie Mae's CRO sub-certified periodic filings during the 

Relevant Period that included Fannie Mae's Alt-A disclosures. Those sub-certifications 

were substantially similar to the representations set forth above in Paragraph 26. 

63. Fannie Mae's CEO, its Single Family EVP and its eRO reviewed and approved Alt-A 

disclosures contained in Fannie Mae's 12b-25 filings during the Relevant Period. 

64. Post-conservatorship, in its November 2008 lO-Q Filing, Fannie Mae disclosed for the 

first time that it excluded certain loans with features similar to Alt-A loans from its 

calculation and quantification of its Alt-A exposure. The November 2008 10-Q Filing 

stated in part: "We have classified mortgage loans as Alt-A if the lender that delivers the 

mortgage to us has classified the loans as Alt-A based on documentation or other 

features; however, we have other loans with some features that are similar to ... Alt-A 

loans that we have not classified as ... Alt-A because they do not meet our classification 

criteria. " 

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