Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning.

Federal National Mortgage Association disclosed 36 risk factors in its most recent earnings report. Federal National Mortgage Association reported the most risks in the “Finance & Corporate” category.

Risk Overview Q3, 2022

Risk Distribution

58% Finance & Corporate

14% Legal & Regulatory

11% Production

8% Tech & Innovation

8% Macro & Political

0% Ability to Sell

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.

Risk Change Over Time

2020

S&P500 Average

Sector Average

Risks removed

Risks added

Risks changed

Federal National Mortgage Association Risk Factors

New Risk (0)

Risk Changed (0)

Risk Removed (0)

No changes from previous report

The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.

The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.

Risk Highlights Q3, 2022

Main Risk Category

Finance & Corporate

With 21 Risks

Finance & Corporate

With 21 Risks

Number of Disclosed Risks

No changes from last report

S&P 500 Average: 31

No changes from last report

S&P 500 Average: 31

Recent Changes

0Risks added

0Risks removed

1Risks changed

Since Sep 2022

0Risks added

0Risks removed

1Risks changed

Since Sep 2022

Number of Risk Changed

No changes from last report

S&P 500 Average: 3

No changes from last report

S&P 500 Average: 3

See the risk highlights of Federal National Mortgage Association in the last period.

Risk Word Cloud

The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.

Risk Factors Full Breakdown - Total Risks 36

Finance & Corporate

Total Risks: 21/36 (58%)Above Sector Average

Share Price & Shareholder Rights4 | 11.1%

Share Price & Shareholder Rights - Risk 1

Our business activities are significantly affected by the conservatorship and the senior preferred stock purchase agreement.

In conservatorship our business is not managed with a strategy to maximize shareholder returns while fulfilling our mission. Our directors have no fiduciary duties to any person or entity except to the conservator. Accordingly, our directors are not obligated to consider the interests of the company, the holders of our equity or debt securities, or the holders of Fannie Mae MBS in making or approving a decision unless specifically directed to do so by the conservator. The Supreme Court’s opinion in Collins v. Yellen in June 2021 included an expansive interpretation of FHFA’s authority as conservator under the Housing and Economic Recovery Act of 2008 (“HERA”), noting that “when the FHFA acts as a conservator, it may aim to rehabilitate the regulated entity in a way that, while not in the best interests of the regulated entity, is beneficial to the Agency and, by extension, the public it serves.” As conservator, FHFA can direct us to enter into contracts or enter into contracts on our behalf, and generally has the power to transfer or sell any of our assets or liabilities. FHFA can prevent us from engaging in business activities or transactions that we believe would benefit our business and financial results. For example, because FHFA can direct us to make changes to our guaranty fee pricing, our ability to address changing market conditions, pursue certain strategic objectives, or manage the mix of loans we acquire is constrained. Additionally, FHFA may require us to undertake activities that are costly or difficult to implement. With FHFA’s broad powers as conservator, changes in leadership at FHFA, including those resulting from a change in the Administration, could result in significant changes to the goals FHFA establishes for us and could have a material impact on our business and financial results. In Collins v. Yellen, the Supreme Court concluded that the for-cause restriction on the President’s power to remove the FHFA Director under HERA violates the Constitution’s separation of powers. Accordingly, the Supreme Court held that the President has the power to remove the Director of FHFA for any reason, not just for cause. Even if we are released from conservatorship, we remain subject to the terms of the senior preferred stock purchase agreement with Treasury, under which we issued the senior preferred stock and warrant. The senior preferred stock purchase agreement can only be canceled or modified with the consent of Treasury. The agreement includes a number of covenants that significantly restrict our business activities. Additionally, under our senior preferred stock purchase agreement, we are subject to a $300 billion debt limit, which will decrease to $270 billion as of December 31, 2022. The unpaid principal balance of our aggregate indebtedness was $202.5 billion as of December 31, 2021. Because of our debt limit, our business activities may be constrained. For more information about the covenants in the senior preferred stock purchase agreement and their potential impact on our business, see “Business—Conservatorship, Treasury Agreements and Housing Finance Reform—Treasury Agreements—Covenants under Treasury Agreements.”

Share Price & Shareholder Rights - Risk 2

The conservatorship and agreements with Treasury adversely affect our common and preferred shareholders.

The material adverse effects of the conservatorship on our shareholders under our agreements with Treasury include the following: No voting rights during conservatorship. During conservatorship, our common shareholders do not have the ability to elect directors or to vote on other matters unless the conservator delegates this authority to them. No dividends to common or preferred shareholders, other than to Treasury. Our conservator announced in September 2008 that we would not pay any dividends on the common stock or on any series of preferred stock, other than the senior preferred stock, while we are in conservatorship. In addition, under the terms of the senior preferred stock purchase agreement, dividends may not be paid to common or preferred shareholders (other than on the senior preferred stock) without the prior written consent of Treasury, regardless of whether we are in conservatorship. Our profits directly increase the liquidation preference of Treasury’s senior preferred stock and, once they exceed our capital reserve amount, will be payable to Treasury as dividends. The senior preferred stock ranks senior to our common stock and all other series of our preferred stock, as well as any capital stock we issue in the future, as to both dividends and distributions upon liquidation. Accordingly, if we are liquidated, the senior preferred stock is entitled to its then-current liquidation preference, before any distribution is made to the holders of our common stock or other preferred stock. See “Business—Conservatorship, Treasury Agreements and Housing Finance Reform—Treasury Agreements—Senior Preferred Stock” for more information on the aggregate liquidation preference of the senior preferred stock. Exercise of the Treasury warrant would substantially dilute the investment of current shareholders. If Treasury exercises its warrant to purchase shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis, the ownership interest in the company of our then-existing common shareholders will be substantially diluted. We are not managed for the benefit of shareholders. Because we are in conservatorship, we are not managed with a strategy to maximize shareholder returns. The senior preferred stock purchase agreement, senior preferred stock and warrant can only be canceled or modified with the consent of Treasury. For additional description of the conservatorship and our agreements with Treasury, see “Business—Conservatorship, Treasury Agreements and Housing Finance Reform.”

Share Price & Shareholder Rights - Risk 3

Our issuance of UMBS and structured securities backed by Freddie Mac-issued securities exposes us to operational and counterparty credit risk.

When we resecuritize Freddie Mac-issued UMBS or other Freddie Mac securities, our guaranty of principal and interest extends to the underlying Freddie Mac security. Although we have an indemnification agreement with Freddie Mac, in the event Freddie Mac were to fail (for credit or operational reasons) to make a payment due on its securities underlying a Fannie Mae-issued structured security, we would be obligated under our guaranty to fund any shortfall and make the entire payment on the related Fannie Mae-issued structured security on that payment date. Our pricing does not currently reflect any incremental credit, liquidity or operational risk associated with our guaranty of resecuritized Freddie Mac securities, or capital requirements related to those exposures. As a result, a failure by Freddie Mac to meet its obligations under the terms of its securities that back structured securities we issue could have a material adverse effect on our earnings and financial condition, and we could be dependent on Freddie Mac and on the senior preferred stock purchase agreements that we and Freddie Mac each have with Treasury to avoid a liquidity event or a default under our guaranty. We expect this risk exposure to increase as we issue more structured securities backed directly or indirectly by Freddie Mac-issued securities going forward. In addition, UMBS have created significant interdependence between the single-family mortgage securitization programs of Fannie Mae and Freddie Mac. Accordingly, the market value and liquidity profile of single-family Fannie Mae MBS could be affected by financial and operational incidents relating to Freddie Mac, even if those incidents do not directly relate to Fannie Mae or Fannie Mae MBS. Similarly, any disruption in Freddie Mac’s securitization activities or any adverse events affecting Freddie Mac’s significant mortgage sellers and servicers also could adversely affect the market value of single-family Fannie Mae MBS.

Share Price & Shareholder Rights - Risk 4

An active trading market in our equity securities may cease to exist, which would adversely affect the market price and liquidity of our common and preferred stock.

Our common stock and preferred stock are now traded exclusively in the over-the-counter market, and are not currently listed on any securities exchanges. We cannot predict the actions of market makers, investors or other market participants, and can offer no assurances that the market for our securities will be stable. If there is no active trading market in our equity securities, the market price and liquidity of the securities will be adversely affected. In addition, the market price of our common stock and preferred stock is subject to significant volatility, which may be due to other factors described in these “Risk Factors,” as well as speculation regarding our future, economic and political conditions generally, liquidity in the over-the-counter market in which our stock trades, and other factors, many of which are beyond our control. Such factors could cause the market price of our common stock and preferred stock to decline significantly, which may result in significant losses to holders of our common stock and preferred stock.

Accounting & Financial Operations6 | 16.7%

Accounting & Financial Operations - Risk 1

The future of our company is uncertain.

The company faces an uncertain future, including how long we will continue to exist in our current form, the extent of our role in the market, the level of government support of our business, how long we will be in conservatorship, what form we will have, what ownership interest, if any, our current common and preferred stockholders will hold in us after the conservatorship is terminated, and whether we will continue to exist following conservatorship. The conservatorship has been in place since 2008, is indefinite in duration and the timing, conditions and likelihood of our emerging from conservatorship are uncertain. Our conservatorship could terminate through a receivership. Termination of the conservatorship, other than in connection with a receivership, requires Treasury’s consent under the senior preferred stock purchase agreement; unless (1) the pending significant lawsuits relating to the amendment of the senior preferred stock purchase agreement and/or the conservatorship have been resolved, and (2) for two or more consecutive quarters, our common equity tier 1 capital, together with any other common stock that we may issue in a public offering, equals or exceeds 3% of our “adjusted total assets” under our enterprise regulatory capital framework. We currently have a significant deficit of core capital relative to our statutory minimum capital requirement. Moreover, the enterprise regulatory capital framework, when it is fully applicable, will require us to hold more capital than the statutory requirement. Our efforts to build sufficient capital to meet our requirements can be significantly affected by growth in our book of business, which can drive increases in our required capital that offset or even outpace increases in our available capital. In addition, we believe that, if we were fully capitalized under the framework, our returns on our current business would not be sufficient to attract private investors, which would limit our options for exiting conservatorship. Increasing our returns may require substantial increases in our pricing or changes in other aspects of our business that could significantly affect our competitive position, our loan acquisition volumes, or the type of business we do, including the level of support we provide to low- and moderate-income borrowers and renters. For more information on the enterprise regulatory capital framework see “Business—Legislation and Regulation—GSE-Focused Matters—Capital—Enterprise Regulatory Capital Framework.” After Fannie Mae was placed into conservatorship, policymakers and others focused significant attention on how to reform the nation’s housing finance system, including what role, if any, Fannie Mae and Freddie Mac should play in that system. Despite this attention, efforts in Congress to enact meaningful reform have been limited, particularly in recent years. The Administration and Congress may consider housing finance reforms or legislation that could result in significant changes in our structure and role in the future, including proposals that would result in Fannie Mae’s liquidation or dissolution. Congress may consider legislation, or federal agencies such as FHFA may consider regulations or administrative actions, to increase the competition we face, reduce our market share, further expand our obligations to provide funds to Treasury, constrain our business operations, or subject us to other obligations that may adversely affect our business. We cannot predict the timing or content of housing finance reform legislation or other legislation, regulations or administrative actions that will impact our activities, nor can we predict the extent of such impact.

Accounting & Financial Operations - Risk 2

Material weaknesses in our internal control over financial reporting could result in errors in our reported results or disclosures that are not complete or accurate.

Management has determined that, as of the date of this filing, we have ineffective disclosure controls and procedures that result in a material weakness in our internal control over financial reporting. In addition, our independent registered public accounting firm, Deloitte & Touche LLP, has expressed an adverse opinion on our internal control over financial reporting because of the material weakness. Our ineffective disclosure controls and procedures and material weakness could result in errors in our reported results or disclosures that are not complete or accurate, which could have a material adverse effect on our business and operations. Our material weakness relates specifically to the impact of the conservatorship on our disclosure controls and procedures. Because we are under the control of FHFA, some of the information that we may need to meet our disclosure obligations may be solely within the knowledge of FHFA. As our conservator, FHFA has the power to take actions without our knowledge that could be material to our shareholders and other stakeholders, and could significantly affect our financial performance or our continued existence as an ongoing business. Because FHFA currently functions as both our regulator and our conservator, there are inherent structural limitations on our ability to design, implement, test or operate effective disclosure controls and procedures relating to information known to FHFA. As a result, we have not been able to update our disclosure controls and procedures in a manner that adequately ensures the accumulation and communication to management of information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws, including disclosures affecting our financial statements. Given the structural nature of this material weakness, we do not expect to remediate this weakness while we are under conservatorship. See “Controls and Procedures” for further discussion of management’s conclusions on our disclosure controls and procedures and internal control over financial reporting.

Accounting & Financial Operations - Risk 3

Failure of our models to produce reliable results may adversely affect our ability to manage risk and make effective business decisions.

We make significant use of quantitative models to measure and monitor our risk exposures and to manage our business. For example, we use models to measure and monitor our exposures to interest rate, credit and market risks, and to forecast credit losses. We use this information in making business decisions relating to strategies, initiatives, transactions, pricing and products. Models are inherently imperfect predictors of actual results because they are based on historical data and assumptions regarding factors such as future loan demand, borrower behavior, creditworthiness and home price trends. Other potential sources of inaccurate or inappropriate model results include errors in computer code, bad data, misuse of data, or use of a model for a purpose outside the scope of the model’s design. Modeling often assumes that historical data or experience can be relied upon as a basis for forecasting future events, an assumption that may be especially tenuous in the face of unprecedented events, such as the COVID-19 pandemic. Given the challenges of predicting future behavior, management judgment is used at every stage of the modeling process, from model design decisions regarding core underlying assumptions, to interpreting and applying final model output. To control for these inherent imperfections, our models are validated by an independent model risk management team within our Enterprise Risk Management Division and are subject to control requirements set by our model risk policies. When market conditions change quickly and in unforeseen ways, there is an increased risk that the model assumptions and data inputs for our models are not representative of the most recent market conditions, which requires management judgment to make adjustments or overrides to our models. In a rapidly changing environment, it may not be possible to update existing models quickly enough to properly account for the most recently available data and events. If our models fail to produce reliable results on an ongoing basis we may not make appropriate risk management decisions, including decisions affecting loan purchases, management of credit losses, guaranty fee pricing, and asset and liability management. Moreover, strategies we employ to manage and govern the risks associated with our use of models may not be effective or fully reliable.

Accounting & Financial Operations - Risk 4

Changes in spreads could materially impact our results of operations, net worth and the fair value of our net assets.

Spread risk can result from changes in the spread between our mortgage assets, including mortgage purchase and sale commitments, and the debt and derivatives we use to hedge our position, as well as the current market spreads of our Connecticut Avenue Securities® (“CAS”) deals issued prior to 2016, which are subject to fair value accounting. Changes in market conditions, including changes in interest rates, liquidity, prepayment and default expectations, and the level of uncertainty in the market for a particular asset class may cause fluctuations in spreads. Changes in mortgage spreads have contributed to significant volatility in our financial results in certain periods, due to fluctuations in the estimated fair value of the financial instruments that we mark to market through our earnings, and this could occur again in a future period. Changes in mortgage spreads could cause significant fair value losses, and could adversely affect our near-term financial results and net worth. We do not actively manage or hedge our spread risk after we purchase mortgage assets, other than through asset monitoring and disposition.

Accounting & Financial Operations - Risk 5

Changes in accounting standards and policies can be difficult to predict and can materially impact how we record and report our financial results.

Our accounting policies and methods are fundamental to how we record and report our financial condition, results of operations and cash flows. From time to time, the FASB or the SEC changes the financial accounting and reporting standards or the policies that govern the preparation of our financial statements. In addition, FHFA provides guidance that affects our adoption or implementation of financial accounting or reporting standards. These changes can be difficult to predict and expensive to implement, and can materially impact how we record and report our financial condition, results of operations and cash flows. We could be required to apply new or revised guidance retrospectively, which may result in the revision of prior-period financial statements by material amounts. The implementation of new or revised accounting guidance, could have a material adverse effect on our financial results or net worth.

Accounting & Financial Operations - Risk 6

In many cases, our accounting policies and methods, which are fundamental to how we report our financial condition and results of operations, require management to make judgments and estimates about matters that are inherently uncertain. Management also relies on models in making these estimates.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in applying many of these accounting policies and methods so that they comply with GAAP and reflect management’s judgment of the most appropriate manner to report our financial condition and results of operations. In some cases, management must select the appropriate accounting policy or method from two or more acceptable alternatives, any of which might be reasonable under the circumstances but might affect the amounts of assets, liabilities, revenues and expenses that we report. See “Note 1, Summary of Significant Accounting Policies” for a description of our significant accounting policies. We have identified our allowance for loan losses accounting policy as critical to the presentation of our financial condition and results of operations. This policy is described in “MD&A—Critical Accounting Estimates.” We believe this policy is critical because it requires management to make particularly subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. Because our financial statements involve estimates for amounts that are very large, even a small change in the estimate can have a significant impact for the reporting period. For example, because our allowance for loan losses is so large, even a change that has a small impact relative to the size of this allowance can have a meaningful impact on our results for the quarter in which we make the change. Because loans are evaluated for impairment under the CECL standard, our credit-related income or expense now reflects expected lifetime losses, rather than just incurred losses, as were recognized under the pre-CECL model. As a result, the CECL standard has introduced additional volatility to our results. Many of our accounting methods involve substantial use of models, which are inherently imperfect predictors of actual results because they are based on assumptions, including about future events. For example, we determine expected lifetime losses on loans and other financial instruments subject to the CECL standard using models. Our actual results could differ significantly from those generated by our models. As a result, the estimates that we use to prepare our financial statements, as well as our estimates of our future results of operations, may be inaccurate, perhaps significantly.

Debt & Financing8 | 22.2%

Debt & Financing - Risk 1

Uncertainty relating to the discontinuance of LIBOR may adversely affect our results of operations, financial condition, liquidity and net worth.

In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced its intention to stop persuading or compelling the group of major banks that sustain LIBOR to submit rate quotations after 2021. ICE Benchmark Administration, the administrator of LIBOR, ceased publication of one-week and two-month U.S. dollar LIBOR after December 2021, and has stated its intention to cease publication of overnight, one-month, three-month, six-month and one-year U.S. dollar LIBOR tenors after June 2023. We have exposure to one-month, three-month, six-month and one-year LIBOR, including in financial instruments that mature after June 2023. Efforts are underway to identify and transition to a set of alternative reference rates. As described in “Business—Legislation and Regulation—Industry and General Matters—Transition from LIBOR and Alternative Reference Rates,” the ARRC has recommended an alternative reference rate referred to as SOFR. However, SOFR is calculated based on different criteria than LIBOR. Accordingly, SOFR and LIBOR may diverge, particularly in times of macroeconomic stress. Since the initial publication of SOFR in 2018, daily changes in SOFR have at times been more volatile than daily changes in comparable benchmark or market rates, and SOFR may be subject to direct influence by activities of the Federal Reserve and the Federal Reserve Bank of New York in ways that other rates may not be. For example, at the direction of the Federal Reserve, the Federal Reserve Bank of New York conducted overnight and term repurchase agreement (“repo”) operations to help maintain the federal funds rate within a target range starting in September 2019. Those activities lasted for an extended period of months and directly impacted prevailing SOFR rates. While many of our LIBOR-indexed financial instruments allow us to take discretionary action to select an alternative reference rate if LIBOR is discontinued, our use of an alternative reference rate may be subject to legal challenges. There is considerable uncertainty as to how the financial services industry will address the discontinuance of LIBOR in financial instruments. This uncertainty could result in disputes and litigation with counterparties and borrowers surrounding the implementation of alternative reference rates in our financial instruments that reference LIBOR. Financial instruments indexed to LIBOR could experience disparate outcomes based on their contractual terms, ability to amend those terms, market or product type, legal or regulatory jurisdiction, and other factors. There can be no assurance that legislative or regulatory actions will dictate what happens if LIBOR ceases or is no longer representative or viable, or what those actions might be. In addition, while the ARRC was created to ensure a successful transition from LIBOR, there can be no assurance that the ARRC will endorse practices that create a smooth transition and minimize value transfers between market participants, or that its endorsed practices will be broadly adopted by market participants. Divergent industry or market participant actions could result after LIBOR is no longer available, representative, or viable. It is uncertain what effect any divergent industry practices will have on the performance of financial instruments, including those that we own or have issued. Alternative reference rates that replace LIBOR may not yield the same or similar economic results over the lives of the financial instruments, which could adversely affect the value of and return on these instruments. The discontinuance of LIBOR could result in our paying higher interest rates on our current LIBOR-indexed obligations, adversely affect the yield on and fair value of the loans and securities we hold or guarantee that reference LIBOR, and increase the costs of or affect our ability to effectively use derivative instruments to manage interest-rate risk. These developments could have a material impact on us, adjustable-rate mortgage borrowers, investors, and our lenders and counterparties. This could result in losses, reputational damage, litigation or costs, or otherwise adversely affect our business.

Debt & Financing - Risk 2

A decline in activity in the U.S. housing market or increasing interest rates could lower our business volumes or otherwise adversely affect our results of operations, net worth and financial condition.

Our business volume is affected by the rate of growth in total U.S. residential mortgage debt outstanding and the size of the U.S. residential mortgage market. A decline in mortgage debt outstanding reduces the unpaid principal balance of mortgage loans available for us to acquire, which in turn could reduce our net interest income and adversely affect our financial results. Various factors may impact our business volume, including: •Rising interest rates, which generally result in fewer mortgage originations, particularly for refinances, as we have seen in the second half of 2021. •Lower home prices and multifamily property valuations, which could preclude some borrowers from being able to refinance their loans.

Debt & Financing - Risk 3

Limitations on our ability to access the debt capital markets could have a material adverse effect on our ability to fund our operations, and our liquidity contingency plans may be difficult or impossible to execute during a sustained liquidity crisis.

Our ability to fund our business depends on our ongoing access to the debt capital markets. Market concerns about matters such as the extent of government support for our business and debt securities, the future of our business (including future profitability, future structure, regulatory actions and our status as a government-sponsored enterprise) and the creditworthiness of the U.S. government could cause a severe negative effect on our access to the unsecured debt markets, particularly for long-term debt. We believe that our ability in recent years to issue debt of varying maturities at attractive pricing resulted from federal government support of our business. As a result, we believe that our status as a government-sponsored enterprise and continued federal government support are essential to maintaining our access to debt funding. Changes or perceived changes in federal government support of our business, our debt securities or our status as a government-sponsored enterprise, including changes arising in connection with efforts to end our conservatorship, could materially and adversely affect our ability to fund our business. There can be no assurance that the government will continue to support our business or our debt securities, or that our current level of access to debt funding will continue. If our senior preferred stock purchase agreement with Treasury is amended in the future to reduce its support for our debt securities issued after such amendment, it could materially increase our borrowing costs or materially adversely affect our access to the debt capital markets. Future changes or disruptions in the financial markets could significantly change the amount, mix and cost of funds we obtain, as well as our liquidity position. If we are unable to issue both short- and long-term debt securities at attractive rates and in amounts sufficient to operate our business and meet our obligations, it likely would interfere with the operation of our business and have a material adverse effect on our liquidity, results of operations, financial condition and net worth. Our liquidity contingency plans may be difficult or impossible to execute during a sustained market liquidity crisis. If the financial markets experience substantial volatility in the future similar to or more intensely than in 2020, it could significantly adversely affect the amount, mix and cost of funds we obtain, as well as our liquidity position. If we cannot access the unsecured debt markets, our ability to repay maturing indebtedness and fund our operations could be eliminated or significantly impaired. In this event, our alternative source of liquidity, our other investments portfolio, may not be sufficient to meet our liquidity needs.

Debt & Financing - Risk 4

A decrease in the credit ratings on our senior unsecured debt could have an adverse effect on our ability to issue debt on reasonable terms, particularly if such a decrease were not based on a similar action on the credit ratings of the U.S. government. A decrease in our credit ratings also could require that we post additional collateral for our derivatives contracts.

A reduction in our credit ratings could materially adversely affect our liquidity, our ability to conduct our normal business operations, our financial condition and our results of operations. Credit ratings on our senior unsecured debt, as well as the credit ratings of the U.S. government, are primary factors that could affect our borrowing costs and our access to the debt capital markets. Credit ratings on our debt are subject to revision or withdrawal at any time by the rating agencies. Actions by governmental entities impacting the support our business or our debt securities receive from Treasury could adversely affect the credit ratings on our senior unsecured debt. If our senior preferred stock purchase agreement with Treasury is amended to reduce its support for our debt securities issued after such amendment, it could result in a downgrade in the credit ratings on our senior unsecured debt. Because we rely on the U.S. government for capital support, in recent years, when a rating agency has taken an action relating to the U.S. government’s credit rating, they have taken a similar action relating to our ratings at approximately the same time. S&P, Moody’s and Fitch have all indicated that they would likely lower their ratings on the debt of Fannie Mae and certain other government-related entities if they were to lower their ratings on the U.S. government. As a result, if a future government shutdown or other event results in downgrades of the government’s credit rating, our credit ratings may be similarly downgraded. We currently cannot predict the potential impact of a credit ratings downgrade on demand for our securities or on our business. A reduction in our credit ratings also could cause derivatives clearing organizations or their members to demand that we post additional collateral for our derivative contracts. Our credit ratings and ratings outlook are included in “MD&A—Liquidity and Capital Management—Liquidity Management—Credit Ratings.

Debt & Financing - Risk 5

Changes in interest rates or our loss of the ability to manage interest-rate risk successfully could adversely affect our financial results and condition, and increase interest-rate risk.

We are subject to interest-rate risk, which is the risk that movements in interest rates will adversely affect the value of our assets or liabilities or our future earnings. Our exposure to interest-rate risk primarily arises from two sources: our “net portfolio,” which we define as our retained mortgage portfolio assets, other investments portfolio, outstanding debt of Fannie Mae used to fund the retained mortgage portfolio assets and other investments portfolio, mortgage commitments and risk management derivatives; and our consolidated MBS trusts. We describe these risks in more detail in “MD&A—Risk Management—Market Risk Management, Including Interest-Rate Risk Management.” Changes in interest rates affect both the value of our mortgage assets and prepayment rates on our mortgage loans, which could have a material adverse effect on our financial results and condition, as well as our liquidity. Our ability to manage interest-rate risk depends on our ability to issue debt instruments with a range of maturities and other features, including call provisions, at attractive rates and to engage in derivatives transactions. We must exercise judgment in selecting the amount, type and mix of debt and derivative instruments that will most effectively manage our interest-rate risk. The amount, type and mix of financial instruments that are available to us may not offset possible future changes in the spread between our borrowing costs and the interest we earn on our mortgage assets. We mark to market changes in the estimated fair value of our derivatives through our earnings on a quarterly basis, but we do not similarly mark to market changes in some of the financial instruments that generate our interest-rate risk exposures. As a result, changes in interest rates, particularly significant changes, can have a significant adverse effect on our earnings and net worth for the quarter in which the changes occur, depending on the nature of the changes and the derivatives and short-term investments we hold at that time. We have experienced significant fair value losses in some periods due to changes in interest rates. Although we implemented hedge accounting in 2021 to reduce the impact of benchmark interest-rate volatility on our financial results, earnings variability driven by other factors, such as spreads or changes in amortization recognized in net interest income, remains. We describe how changes in amortization affect net interest income in “MD&A—Consolidated Results of Operations—Net Interest Income.” In addition, our ability to effectively reduce earnings volatility is dependent on having the right mix and volume of interest-rate swaps available. As our portfolio of interest-rate swaps varies over time, our ability to reduce earnings volatility through hedge accounting may vary as well. Changes in interest rates also can affect our credit losses. When interest rates increase, our credit losses from loans with adjustable payment terms may increase as borrower payments increase at their reset dates, which increases the borrower’s risk of default. Rising interest rates may also reduce the opportunity for these borrowers to refinance into a fixed-rate loan. Similarly, many borrowers may have additional debt obligations, such as home equity lines of credit and second liens, that also have adjustable payment terms. If a borrower’s payment on his or her other debt obligations increases due to rising interest rates or a change in amortization, it increases the risk that the borrower may default on a loan we own or guarantee. In addition to increasing the risk of future borrower defaults, rising interest rates reduce expected future loan prepayments, which lengthens the expected life of our loans and therefore increases our loss reserves related to any concessions we may have provided on those loans.

Debt & Financing - Risk 6

The liquidity and market value of our MBS could be adversely affected by negative developments in the UMBS market.

The success of UMBS is largely predicated on the fungibility of UMBS issued by Fannie Mae and Freddie Mac. If investors stop viewing Fannie Mae-issued UMBS and Freddie Mac-issued UMBS as fungible, or if investors prefer Freddie Mac-issued UMBS over Fannie Mae-issued UMBS, it could adversely affect the liquidity and market value of Fannie Mae MBS, the volume of our UMBS issuances and our guaranty fee revenues. FHFA adopted a rule to align Fannie Mae and Freddie Mac programs, policies and practices that affect the prepayment rates of TBA-eligible mortgage-backed securities to support the fungibility of Fannie Mae-issued UMBS and Freddie Mac-issued UMBS. However, these alignment efforts may not be successful over the long term and the prepayment rates on Fannie Mae-issued UMBS and Freddie Mac-issued UMBS could diverge in a manner that is disadvantageous for us. The continued support of FHFA, Treasury, the Securities Industry and Financial Markets Association, and certain other regulatory bodies is critical to the success of UMBS. If any of these entities were to cease its support, the liquidity and market value of Fannie Mae-issued UMBS could be adversely affected. Furthermore, if either we or Freddie Mac exits conservatorship, it is unclear whether our and Freddie Mac’s programs, policies and practices in support of UMBS and resecuritizations of each other’s securities would be sustained.

Debt & Financing - Risk 7

We may incur significant credit losses and credit-related expenses on the loans in our book of business.

We are exposed to a significant amount of mortgage credit risk on our $4.0 trillion guaranty book of business. Borrowers may fail to make required payments on mortgage loans we own or guaranty. This exposes us to the risk of credit losses and credit-related expenses. In general, significant home price declines or increased loan delinquencies could materially increase our credit losses and credit-related expense. Loan delinquencies, among other factors, are influenced by income growth rates and unemployment levels, which affect borrowers’ ability to repay their mortgage loans. Home price growth is cyclical and changes in home prices affect the amount of equity that borrowers have in their homes. As home prices increase, the severity of losses we incur on defaulted loans that we hold or guarantee decreases because the amount we can recover from the properties securing the loans increases. Conversely, declines in home prices increase the losses we incur on defaulted loans. The pace of rapid home price growth that we have experienced over the last year is not expected to continue. If home prices decline rapidly and a large number of borrowers default on their loans, we could experience significant credit losses on our book of business. In addition, the economic dislocation caused by the COVID-19 pandemic resulted in a significant increase in the serious delinquency rate of the single-family and multifamily loans in our guaranty book of business in 2020. While our single-family and multifamily serious delinquency rates declined in 2021 due to the ongoing economic recovery and the decline in the number of our loans in forbearance plans, they remain higher than pre-pandemic levels. Our loans currently in forbearance generally have a somewhat weaker credit profile than our overall guaranty book of business. If a large number of borrowers cannot repay the amounts owed at the end of their forbearance plans or over time, or fail to qualify for repayment plans, payment deferrals or modifications, this could result in significantly higher defaults on the mortgage loans in our guaranty book of business. We may ultimately experience greater losses than we currently expect and may have high credit-related expenses in future periods. The credit performance of loans in our book of business could deteriorate in the future, particularly if we experience home price declines, economic dislocation and elevated unemployment, resulting in significantly higher credit losses and credit-related expenses. We present detailed information about the risk characteristics of our single-family conventional guaranty book of business in “MD&A—Single-Family Business” and our multifamily guaranty book of business in “MD&A—Multifamily Business.” While we use certain credit enhancements to mitigate some of our potential future credit losses, we may not be able to obtain as much protection from our credit enhancements as we would like, for a number of reasons: •Some of the credit enhancements we use, such as mortgage insurance, Credit Insurance Risk TransferTM (“CIRTTM”) transactions and DUS lender loss-sharing arrangements, are subject to the risk that the counterparties may not meet their obligations to us. •Our credit risk transfer transactions have limited terms, after which they provide limited or no further credit protection on the covered loans. •Our credit risk transfer transactions are not designed to shield us from all losses because we retain a portion of the risk of future losses on loans covered by these transactions, including all or a portion of the first loss risk in most transactions. •In the event of a sufficiently severe economic downturn, we may not be able to enter into new back-end credit risk transfer transactions for our recent acquisitions on economically advantageous terms. •Mortgage insurance does not protect us from all losses on covered loans. For example, mortgage insurance does not cover property damage that is not already covered by the hazard or flood insurance we require, and such damage may result in a reduction to, or a denial of mortgage insurance benefits. A property damaged by a flood that was outside a Federal Emergency Management Agency (“FEMA”)-designated Special Flood Hazard Area, where we require coverage, or a property damaged by an earthquake are the most likely scenarios where property damage may result in a default not covered by hazard insurance.

Debt & Financing - Risk 8

Our financial condition or results of operations may be adversely affected if mortgage servicers fail to perform their obligations to us.

We delegate the servicing of the mortgage loans in our guaranty book of business to mortgage servicers; we do not have our own servicing function. Functions performed by mortgage servicers on our behalf include collecting and delivering principal and interest payments, administering escrow accounts, monitoring and reporting delinquencies, performing default prevention activities and other functions. A servicer’s inability or other failure to perform these functions or to follow our requirements could negatively impact our ability to, among other things: •manage our book of business; •collect amounts due to us; •actively manage troubled loans; and •implement our homeownership assistance, foreclosure prevention and other loss mitigation efforts. A large portion of our single-family guaranty book is serviced by non-depository servicers. The potentially lower financial strength, liquidity and operational capacity of non-depository mortgage sellers and servicers compared with depository mortgage sellers and servicers may negatively affect their ability to fully satisfy their financial obligations or to properly service the loans on our behalf. If we replace a mortgage servicer, we likely would incur costs and potential increases in servicing fees and could also face operational risks. If a mortgage servicer fails, it could result in a temporary disruption in servicing and loss mitigation activities relating to the loans serviced by that mortgage servicer, particularly if there is a loss of experienced servicing personnel. We may also face challenges in transferring a large servicing portfolio. Multifamily mortgage servicing is typically performed by the lenders who sell the mortgages to us, including non-depository servicers. We are exposed to the risk that multifamily servicers could come under financial pressure, which could potentially result in a decline in the quality of the servicing they provide us. The actions we have taken to mitigate our credit risk exposure to mortgage servicers may not be sufficient to prevent us from experiencing significant financial losses or business interruptions in the event they cannot fulfill their obligations to us.

Corporate Activity and Growth3 | 8.3%

Corporate Activity and Growth - Risk 1

Pursuing our housing goals, duty to serve obligations, and Equitable Housing Finance Plan may adversely affect our business, results of operations and financial condition.

We are required by the GSE Act to support the housing market in ways that could adversely affect our financial results and condition. For example, we are subject to housing goals that require a portion of the mortgage loans we acquire to be for low- and very low-income families, families in low-income census tracts and moderate-income families in minority census tracts or designated disaster areas. We also have a duty to serve very low-, low- and moderate-income families in three underserved markets: manufactured housing, affordable housing preservation and rural areas. In September 2021, FHFA instructed us to prepare and implement a three-year Equitable Housing Finance Plan. This plan, which was submitted to FHFA in December 2021, is intended to advance equity in housing finance by working to remove barriers to affordable rental housing and homeownership experienced by members of underserved populations, particularly racial and ethnic groups with a significant homeownership rate disparity. We may take actions to support the housing market, including to meet our housing goals, duty to serve obligations and Equitable Housing Finance Plan, that could adversely affect our profitability. For example, we may acquire loans that offer lower expected returns or increase our credit losses and credit-related expenses. If we do not meet our housing goals or duty to serve requirements, and FHFA finds that the goals or requirements were feasible, we may become subject to a housing plan with additional requirements that could have an adverse effect on our results of operations and financial condition. The potential penalties for failure to comply with housing plan requirements include a cease-and-desist order and civil money penalties. See “Business—Legislation and Regulation—GSE-Focused Matters” for more information on our housing goals and duty to serve underserved markets and “Business—Conservatorship, Treasury Agreements and Housing Finance Reform—Equitable Housing Finance Plan” for more information on our Equitable Housing Finance Plan.

Corporate Activity and Growth - Risk 2

We are limited in our ability to diversify our business and may be prohibited from undertaking activities that management believes would benefit our business.

As a federally chartered corporation, we are subject to the limitations imposed by the Charter Act, extensive regulation, supervision and examination by FHFA and regulation by other federal agencies, including Treasury, HUD and the SEC. The Charter Act defines our permissible business activities. For example, we may not originate mortgage loans or purchase single-family loans in excess of the conforming loan limits, and our business is limited to the U.S. housing finance sector. FHFA, as our regulator, may impose additional limitations on our business. For example, the GSE Act requires us to obtain prior approval from FHFA for new products and to provide prior notice to FHFA of new activities that we consider not to be products. In September 2020, FHFA proposed a rule to implement these requirements that, if adopted, would permit FHFA to establish terms, conditions, or limitations with respect to any new product or new activity. In addition, as described in a previous risk factor, our business activities are subject to significant restrictions as a result of the conservatorship and the senior preferred stock purchase agreement. These limitations and requirements may cause us to delay or prevent us from undertaking new business activities management believes would benefit our business. Further, as a result of these limitations and requirements on our ability to diversify our operations, our financial condition and results of operations depend almost entirely on conditions in a single sector of the U.S. economy, specifically, the U.S. housing market. Weak or unstable conditions in the U.S. housing market can therefore have a significant adverse effect on our business that we cannot mitigate through diversification.

Corporate Activity and Growth - Risk 3

Our concurrent implementation of multiple new initiatives may increase our operational risk and result in one or more material weaknesses in our internal control over financial reporting.

We are currently implementing a number of initiatives in furtherance of both our and our conservator’s strategic objectives. The magnitude of the many new initiatives we are undertaking may increase our operational risk. Many of these initiatives involve significant changes to our business processes, controls, systems and infrastructure, require substantial attention from management, and present significant operational challenges for us. Some business initiatives that we are currently developing or executing against include a new general ledger platform, our environmental, social and governance initiatives, enhancements and efficiencies to our operational processes, and enhancements to our existing and development of new information technology and other systems. For example, for the past several years we have been transitioning our core information technology systems to third-party cloud-based platforms. If completing this initiative is delayed or we fail to complete it in a well-managed, secure and effective manner, we may experience unplanned service disruption or unforeseen costs, which could result in material harm to our business and results of operations. In addition, FHFA as our conservator is requiring that we undertake a number of initiatives, including those set forth in their 2022 scorecard. While implementation of each individual initiative creates operational challenges, implementing multiple initiatives during the same time period significantly increases these challenges. Due to the operational complexity associated with these changes and the limited time periods for implementing them, we believe there is a risk that implementing these changes could result in one or more material weaknesses in our internal control over financial reporting in a future period. If this were to occur, we could experience material errors in our reported financial results. In addition, FHFA, Treasury, other agencies of the U.S. government or Congress may require us to implement additional initiatives in the future that could further increase our operational risk.

Legal & Regulatory

Total Risks: 5/36 (14%)Below Sector Average

Regulation3 | 8.3%

Regulation - Risk 1

Our regulator is authorized or required to place us into receivership under specified conditions, which would result in our liquidation, and FHFA, acting as receiver, proceeding to realize on our assets. Amounts recovered by our receiver from these actions may not be sufficient to repay the liquidation preference of any series of our preferred stock or to provide any proceeds to common shareholders.

FHFA is required to place us into receivership if the Director of FHFA makes a written determination that our assets are less than our obligations or if we have not been paying our debts as they become due, in either case, for a period of 60 days after the SEC filing deadline for any of our Form 10-Ks or Form 10-Qs. Although Treasury committed to providing us funds in accordance with the terms of the senior preferred stock purchase agreement, if we need funding from Treasury to avoid triggering FHFA’s obligation, Treasury may not be able to provide sufficient funds to us within the required 60 days if it has exhausted its borrowing authority, if there is a government shutdown, or if the funding we need exceeds the amount available to us under the agreement. In addition, we could be put into receivership at the discretion of the Director of FHFA at any time for the reasons set forth in the GSE Act, including if our Board or shareholders consent to the appointment of a receiver or, if under the definitions in the GSE Act, we are undercapitalized with no reasonable prospect of becoming adequately capitalized or critically undercapitalized. Under the GSE Act, FHFA succeeded to all of the rights, titles, powers and privileges of our board of directors and shareholders. In addition, we have not held sufficient core or total capital to meet the critical capital requirements in the GSE Act since 2008. A receivership would terminate the conservatorship. In addition to the powers FHFA has as our conservator, the appointment of FHFA as our receiver would terminate all rights and claims that our shareholders and creditors may have against our assets or under our charter arising from their status as shareholders or creditors, except for their right to payment, resolution or other satisfaction of their claims as permitted under the GSE Act. If we are placed into receivership and do not or cannot fulfill our MBS guaranty obligations, there may be significant delays of any payments to our MBS holders, and the MBS holders could become unsecured creditors of ours with respect to claims made under our guaranty to the extent the mortgage collateral underlying the Fannie Mae MBS is insufficient to satisfy the claims of the MBS holders. In the event of a liquidation of our assets, only after payment of the administrative expenses of the receiver and the immediately preceding conservator, the secured and unsecured claims against the company (including repaying all outstanding debt obligations), and the liquidation preference of the senior preferred stock, would any liquidation proceeds be available to repay the liquidation preference on any other series of preferred stock. Finally, only after the liquidation preference on all series of preferred stock is repaid would any liquidation proceeds be available for distribution to the holders of our common stock. In the event of such a liquidation, we can make no assurances that there would be sufficient proceeds to make any distribution to holders of our preferred stock or common stock, other than to Treasury as the holder of our senior preferred stock.

Regulation - Risk 2

Regulatory changes in the financial services industry may negatively impact our business.

Changes in the regulation of the financial services industry are affecting and are expected to continue to affect many aspects of our business. Changes to financial regulations could affect our business directly or indirectly if they affect our lenders and counterparties. Examples of regulatory changes that have affected us or may affect us in the future include: rules requiring the clearing of certain derivatives transactions and margin and capital rules for uncleared derivative trades, which impose additional costs on us; and the Dodd-Frank Act risk retention and single-counterparty credit limit requirements. Additional changes in regulations applicable to U.S. banks could affect the volume and characteristics of mortgage loans available in the market and could also affect demand for our debt securities and MBS, as U.S. banks purchase a large amount of our debt securities and MBS. New or revised liquidity or capital requirements applicable to U.S. banks could materially affect banks’ willingness to deliver loans to us and demand by those banks for our debt securities and MBS. Developments in connection with the single-counterparty credit limit regulations, including those taken in anticipation of our eventual exit from conservatorship, could also cause our lenders and investors to change their business practices. The actions of Treasury, the Commodity Futures Trading Commission, the CFPB, the SEC, the Federal Deposit Insurance Corporation, the Federal Reserve and international central banking authorities directly or indirectly impact financial institutions’ cost of funds for lending, capital-raising and investment activities, which could increase our borrowing costs or make borrowing more difficult for us. Changes in monetary policy are beyond our control and difficult to anticipate. Overall, these legislative and regulatory changes could affect us in substantial and unforeseeable ways and could have a material adverse effect on our business, results of operations, financial condition, liquidity and net worth.

Regulation - Risk 3

Legislative, regulatory or judicial actions could negatively impact our business, results of operations, financial condition or net worth.

Legislative, regulatory or judicial actions at the federal, state or local level could negatively impact our business, results of operations, financial condition, liquidity or net worth. Legislative, regulatory or judicial actions could affect us in a number of ways, including by imposing significant additional costs on us and diverting management attention or other resources. For example, the enterprise regulatory capital framework, when it is fully applicable, will require us to hold more capital than the statutory requirement, which may require us to change or limit certain business activities to maintain appropriate risk-adjusted returns. We could also be affected by: •Actions taken by the U.S. Congress, Treasury, the Federal Reserve, FHFA or other national, state or local government agencies or legislatures in response to the continued spread of COVID-19 and its variants, such as expanding or extending our obligations to help borrowers, renters or counterparties affected by the pandemic or imposing new business shut-downs or other restrictions. •Legislative or regulatory changes that expand our, or our servicers’, responsibility and liability for securing, maintaining or otherwise overseeing properties prior to foreclosure, which could increase our costs. •Court decisions concluding that we or our affiliates are governmental actors, which could impose additional burdens and requirements on us. •Designation as a systemically important financial institution by the Financial Stability Oversight Council (the “FSOC”). We have not been designated as a systemically important financial institution; however, the FSOC announced in 2020 that it will continue to monitor the secondary mortgage market activities of the GSEs to ensure potential risks to financial stability are adequately addressed. Designation as a systemically important financial institution would result in our becoming subject to additional regulation and oversight by the Federal Reserve Board. •Other agencies of the U.S. government or Congress asking us to take actions to support the housing and mortgage markets or in support of other goals. For example, in December 2011, Congress enacted the TCCA under which we increased our guaranty fee on all single-family mortgages delivered to us by 10 basis points. The revenue generated by this fee increase is paid to Treasury. In November 2021, the Infrastructure Investment and Jobs Act was enacted, which extended to October 1, 2032 our obligation under the TCCA to collect 10 basis points in guaranty fees on single-family residential mortgages delivered to us and pay the associated revenue to Treasury.

Litigation & Legal Liabilities2 | 5.6%

Litigation & Legal Liabilities - Risk 1

Our business and financial results could be materially adversely affected by legal or regulatory proceedings.

We are a party to various claims and other legal proceedings. We are periodically involved in government investigations. We may be required to establish accruals and to make substantial payments in the event of adverse judgments or settlements of any such claims, investigations or proceedings, which could have a material adverse effect on our business, results of operations, financial condition, liquidity and net worth. Any legal proceeding or governmental investigation, even if resolved in our favor, could result in negative publicity, reputational harm or cause us to incur significant legal and other expenses. In addition, responding to these matters could divert significant internal resources away from managing our business. In addition, a number of lawsuits have been filed against the U.S. government relating to the senior preferred stock purchase agreement and the conservatorship. See “Note 16, Commitments and Contingencies” and “Legal Proceedings” for a description of these lawsuits. These lawsuits, and actions Treasury or FHFA may take in response to these lawsuits, could have a material impact on our business.

Litigation & Legal Liabilities - Risk 2

Mortgage fraud could result in significant financial losses and harm to our reputation.

We use a process of delegated underwriting in which lenders make specific representations and warranties about the characteristics of the mortgage loans we purchase and securitize. As a result, we do not independently verify most borrower information that is provided to us. This exposes us to the risk that one or more of the parties involved in a transaction (the borrower, seller, broker, appraiser, title agent, lender or servicer) will engage in fraud by misrepresenting facts about a mortgage loan. Similarly, we rely on delegated servicing of loans and use of a variety of external resources to manage our REO inventory. We have experienced financial losses resulting from mortgage fraud, including institutional fraud perpetrated by counterparties. In the future, we may experience additional financial losses or reputational damage as a result of mortgage fraud.

Production

Total Risks: 4/36 (11%)Above Sector Average

Employment / Personnel1 | 2.8%

Employment / Personnel - Risk 1

Our business and results of operations may be materially adversely affected if we are unable to retain and recruit well-qualified executives and other employees. The conservatorship, the uncertainty of our future, and limitations on our executive and employee compensation put us at a disadvantage compared to many other companies with which we compete for talent. In addition, the improving economy and increased remote work opportunities have increased the competition we face in retaining and hiring executives and other employees.

Our business is highly dependent on the talents and efforts of our executives and other employees. The conservatorship, the uncertainty of our future, and limitations on executive and employee compensation have had, and are likely to continue to have, an adverse effect on our ability to retain and recruit talent. Voluntary attrition of our executives and other employees has increased over the past year compared with prior years. Attrition in key management positions and challenges in finding replacements could harm our ability to manage our business effectively, to successfully implement strategic initiatives, and ultimately could adversely affect our financial performance. Actions taken by Congress, FHFA and Treasury to date, or that may be taken by them or other government agencies in the future, have had, and may continue to have, an adverse effect on our retention and recruitment of executives and other employees. We are subject to significant restrictions on the amount and type of compensation we may pay while under conservatorship. For example: •The Equity in Government Compensation Act of 2015 limits the compensation and benefits for our Chief Executive Officer to the same level in effect as of January 1, 2015 while we are in conservatorship or receivership. Accordingly, annual direct compensation for our Chief Executive Officer is limited to base salary at an annual rate of $600,000. •The Stop Trading on Congressional Knowledge Act of 2012, known as the STOCK Act, and related FHFA regulations prohibit our senior executives from receiving bonuses during conservatorship. •As our conservator, FHFA has the authority to approve the terms and amounts of our executive compensation and may require changes to our executive compensation program. FHFA has advised us that, given our conservatorship status, our executive compensation program is designed generally to provide for lower pay levels relative to large financial services firms that are not in conservatorship. FHFA has instructed us to benchmark to the lower end of the range of market compensation for new executive hires and compensation increase requests for existing executives, which limits our ability to offer market-competitive compensation for our executives if FHFA does not grant an exception. See “Executive Compensation—Compensation Discussion and Analysis—2021 Executive Compensation Program; Chief Executive Officer Compensation” for a description of FHFA’s primary objectives for our executive compensation program, as well as directives and guidance FHFA has provided relating to our executive compensation during conservatorship. •The terms of our senior preferred stock purchase agreement with Treasury contain specified restrictions relating to compensation, including a prohibition on selling or issuing equity securities without Treasury’s prior written consent except under limited circumstances, which effectively eliminates our ability to offer equity-based compensation to our employees. As a result of the restrictions on our compensation, we have not been able to incent and reward excellent performance with compensation structures that provide upside potential to our executives, which places us at a disadvantage compared to many other companies in attracting and retaining executives. In addition, the restrictions on our compensation and the uncertainty of potential action by Congress or the Administration with respect to our future— including whether we will exit conservatorship, how long it may take before we exit conservatorship, or whether housing finance reform will result in a significant restructuring of the company or the company no longer continuing to exist—also negatively affects our ability to retain and recruit executives and other employees. The cap on our Chief Executive Officer compensation continues to make retention and succession planning for this position particularly difficult, and it may make it difficult to attract qualified candidates for this critical role in the future. In June 2021, FHFA issued a request for input on executive compensation at FHFA’s regulated entities. The request for input asked for public feedback on our executive compensation program both during and after conservatorship. Further changes in our executive compensation program could affect our ability to retain and recruit executive officers. We face competition from the financial services and technology industries, and from businesses outside of these industries, for qualified executives and other employees. An improving economy and increased remote work opportunities have increased the competition we face from other companies in hiring new executives and other employees, as well as in retaining our executives and employees. If this increased competition for executive and employee talent persists and if we are unable to retain, promote and attract executives and other employees with the necessary skills and talent, we would face increased risks for operational failures. If there were several high-level departures at approximately the same time, our ability to conduct our business could be materially adversely affected, which could have a material adverse effect on our results of operations and financial condition.

Supply Chain1 | 2.8%

Supply Chain - Risk 1

One or more of our institutional counterparties may fail to fulfill their contractual obligations to us, resulting in financial losses, business disruption and decreased ability to manage risk.

We rely on our institutional counterparties to provide services and credit enhancements that are critical to our business. We face the risk that one or more of our institutional counterparties may fail to fulfill their contractual obligations to us. If an institutional counterparty defaults on its obligations to us, it could also negatively impact our ability to operate our business, as we outsource some of our critical functions to third parties, such as mortgage servicing, single-family Fannie Mae MBS issuance and administration, and certain technology functions. Our primary exposures to institutional counterparties are with credit guarantors that provide credit enhancements on the mortgage assets that we hold in our retained mortgage portfolio or that back our Fannie Mae MBS, including; •mortgage insurers and reinsurers, including those that participate in our CIRT transactions, and multifamily lenders with risk sharing arrangements; •mortgage servicers that service the loans we hold in our retained mortgage portfolio or that back our Fannie Mae MBS; •mortgage sellers and servicers that are obligated to repurchase loans from us or reimburse us for losses in certain circumstances; •the financial institutions that issue the investments, including overnight bank deposits, held in our other investments portfolio; and •derivatives counterparties. We also have counterparty exposure to custodial depository institutions; mortgage originators, investors and dealers; debt security dealers; central counterparty clearing institutions; and document custodians. The concentration of our counterparties in similar or related businesses heightens our counterparty risk exposure. We routinely enter into a high volume of transactions with counterparties in the financial services industry, including brokers and dealers, mortgage lenders and commercial banks, and mortgage insurers, resulting in a significant credit concentration with respect to this industry. We may also have multiple exposures to particular counterparties, as many of our counterparties perform several types of services for us. For example, our lenders or their affiliates may also act as derivatives counterparties, mortgage servicers, custodial depository institutions or document custodians. Accordingly, if one of these counterparties were to become insolvent or otherwise default on its obligations to us, it could harm our business and financial results in a variety of ways. An institutional counterparty may default on its obligations to us for a number of reasons, such as changes in financial condition that affect its credit rating, changes in its servicer rating, a reduction in liquidity, operational failures or insolvency. In the event of a bankruptcy or receivership of one of our counterparties, we may be required to establish our ownership rights to the assets these counterparties hold on our behalf to the satisfaction of the bankruptcy court or receiver, which could result in a delay in accessing these assets causing a decline in their value. Counterparty defaults or limitations on their ability to do business with us could result in significant financial losses or hamper our ability to do business or manage the risks to our business. In addition, if we are unable to replace a defaulting counterparty that performs services critical to our business, it could adversely affect our ability to conduct our operations and manage risk. We have significant exposure to institutions in the financial services industry relating to derivatives, funding, short-term lending, securities, and other transactions. We depend on our ability to enter into derivatives transactions with our derivatives counterparties in order to manage the duration and prepayment risk of our retained mortgage portfolio. If we lose access to our derivatives counterparties, it could adversely affect our ability to manage these risks. We use clearinghouses to facilitate many of our derivative trades. If the clearinghouse or the clearing member we use to access the clearinghouse defaults, we could lose margin that we have posted with the clearing member or clearinghouse. We are also a clearing member of two divisions of Fixed Income Clearing Corporation (“FICC”), a central counterparty (“CCP”). One FICC division clears our trades involving securities purchased under agreements to resell, securities sold under agreements to repurchase, and other non-mortgage related securities. The other division clears our forward purchase and sale commitments of mortgage-related securities, including dollar roll transactions. As a clearing member of FICC, we could be exposed to the losses if the CCP or one or more of the CCP’s clearing members fails to perform its obligations, because each FICC clearing member is required to absorb a portion of the losses incurred by other clearing members if they fail to meet their obligations to the clearinghouse. For more information, see “MD&A—Risk Management—Institutional Counterparty Credit Risk Management—Other Counterparties—Central Counterparty Clearing Institutions.”

Costs2 | 5.6%

Costs - Risk 1

We may suffer losses if borrowers suffer property damage as a result of a hazard for which we do not require insurance, such as flooding outside of certain areas, if property or flood insurance is unobtainable or prohibitively costly, if their claims under insurance policies are not paid, or if their insurance is insufficient to cover all losses.

In general, we require borrowers to obtain and maintain property insurance to cover the risk of damage to their homes or properties resulting from hazards such as fire, wind and, for properties in a Special Flood Hazard Area as designated by FEMA, flooding. To the extent that borrowers suffer property damage as a result of a hazard for which we do not generally require insurance, such as earthquake damage or flood damage on a property located outside a Special Flood Hazard Area, are unable to obtain insurance and suffer property damage, their claims under insurance policies are not paid, or their insurance is insufficient to cover their losses, they may not pay their mortgage loans, which negatively impacts our credit losses and credit-related expenses. Hazard insurers may experience financial strain and be unable to make payments on related claims during any period in which significant numbers of mortgaged properties are damaged by natural or other disasters. Only a small portion of loans in our guaranty book of business as of December 31, 2021 was located in a Special Flood Hazard Area, for which we require flood insurance: 2.9% of loans in our single-family guaranty book of business and 6.3% of loans in our multifamily guaranty book of business. We believe that only a small portion of borrowers in most places outside of a Special Flood Hazard Area obtain flood insurance. The risk of significant flooding in places outside of a Special Flood Hazard Area (that is, in places where we do not require flood insurance) is expected to increase in the coming years as a result of climate change. Single-family borrowers who obtain flood insurance generally rely on the National Flood Insurance Program (“NFIP”), which was recently extended through February 18, 2022. If Congress fails to extend or re-authorize the program upon future expirations, FEMA may not have sufficient funds to pay claims for flood damage, and borrowers may not be able to renew their flood insurance coverage or obtain new policies through the NFIP. In addition, NFIP insurance does not cover temporary living expenses, and the maximum limit of coverage available under NFIP for a single-family residential property is $250,000, which may not be sufficient to cover all losses. Increases in the intensity or frequency of floods or other weather-related disasters as a result of climate change will expand the foregoing risks. Insurers in some areas have become less willing to continue writing coverage or have significantly increased insurance premiums in certain areas for certain perils. As coverage becomes unavailable or prohibitively expensive in an area, home prices may be negatively impacted, and fewer loans in the area may be eligible for acquisition by Fannie Mae. Ultimately, the desirability of areas that frequently experience hurricanes, wildfires or other natural disasters may diminish over time, which can depress home prices or adversely affect the region’s economy, which may negatively impact our financial results.

Costs - Risk 2

We may incur losses as a result of claims under our mortgage insurance policies not being paid in full or at all.

We rely heavily on mortgage insurers to provide insurance against borrower defaults on single-family conventional mortgage loans with LTV ratios over 80% at the time of acquisition. Although our primary mortgage insurer counterparties currently approved to write new business must meet risk-based asset requirements, there is still a risk that these counterparties may fail to fulfill their obligations to pay our claims under insurance policies. With respect to primary mortgage insurers that we have approved to write coverage on loans sold to us, we currently do not differentiate pricing based on counterparty strength or operational performance. Additionally, we would not revoke a primary mortgage insurer’s status as an eligible insurer unless there was a material violation of our private mortgage insurer eligibility requirements. Further, we do not generally select the provider of primary mortgage insurance on a specific loan, because the selection is usually made by the lender at the time the loan is originated. Accordingly, we have limited ability to manage our concentration risk with respect to primary mortgage insurers. Three of our mortgage insurer counterparties that are currently not approved to write new business—PMI Mortgage Insurance Co. (“PMI”), Triad Guaranty Insurance Corporation (“Triad”) and Republic Mortgage Insurance Company (“RMIC”)—are currently in run-off. Mortgage insurers that are in run-off continue to collect renewal premiums and process claims on their existing insurance business, but are no longer approved to write new insurance with us, which increases the risk that the mortgage insurer will fail to pay claims fully. Entering run-off may limit sources of profits and liquidity for the mortgage insurer and could also cause the quality and speed of its claims processing to deteriorate. PMI and Triad have been paying only a portion of policyholder claims and deferring the remaining portion and it is uncertain whether they will be permitted in the future to pay their deferred policyholder claims or increase or decrease the amount of cash they pay on claims. RMIC is no longer deferring payments on policyholder claims, but remains in run-off. For more information on mortgage insurers in run-off and our risk in force mortgage insurance coverage see “Note 13, Concentrations of Credit Risk—Other Concentrations.” On at least a quarterly basis, we assess our mortgage insurer counterparties’ respective abilities to fulfill their obligations to us, and our loss reserves take into account this assessment. If our assessment indicates their ability to pay claims has deteriorated significantly or if our projected claim amounts have increased, we could experience an increase in credit-related expenses and credit losses.

Tech & Innovation

Total Risks: 3/36 (8%)Above Sector Average

Cyber Security1 | 2.8%

Cyber Security - Risk 1

A breach of the security of our systems or facilities, or those of third parties with which we do business, including as a result of cyber attacks, could damage or disrupt our business or result in the disclosure or misuse of confidential information, which could damage our reputation, result in regulatory sanctions and/or increase our costs and cause losses.

Our operations rely on the secure receipt, processing, storage and transmission of confidential and other information in our computer systems and networks and with our business partners, including proprietary, confidential or personal information that is subject to privacy laws, regulations or contractual obligations. Information security risks for large institutions like us have significantly increased in recent years in part because of the proliferation of new technologies and the use of the Internet, mobile, telecommunications and cloud technologies to conduct or automate financial transactions. A number of financial services companies, consumer-based companies and other organizations have reported the unauthorized disclosure of client, customer or other confidential information, as well as cyber attacks involving the dissemination, theft and destruction of corporate information, intellectual property, cash or other valuable assets. There have also been several highly publicized ransomware cyber attacks where hackers have requested “ransom” payments in exchange for not disclosing stolen customer information or for unlocking or not disabling the target company’s computer or other systems. We have been, and likely will continue to be, the target of cyber attacks, computer viruses, malicious code, social engineering attacks, including phishing attacks, denial of service attacks and other information security threats. To date, cyber attacks have not had a material impact on our financial condition, results or business. However, we could suffer material financial or other losses in the future as a result of cyber attacks, and these attacks and their impacts are hard to predict. Our risk and exposure to these matters remains heightened because of, among other things: •the evolving nature of these threats; •the current global economic and political environment; •our prominent size and scale and our role in the financial services industry; •the outsourcing of some of our business operations; •the ongoing shortage of qualified cybersecurity professionals; •our migration to cloud-based systems; •our increased use of employee-owned devices for business communication; •the large number of our employees working remotely; and •the interconnectivity and interdependence of third parties to our systems. Despite our efforts to ensure the integrity of our software, computers, systems and information, we may not be able to anticipate, detect or recognize threats to our systems and assets, or to implement effective preventive measures against all cyber threats, especially because the techniques used are increasingly sophisticated, change frequently, are complex, and are often not recognized until launched. In addition, recent large-scale cyber attacks suggest that the risk of damaging cyberattacks impacting us and/or third-parties with which we do business is increasing. We expect cyber attack and breach incidents to continue, and we are unable to predict the direct or indirect impact of future attacks or breaches on our business operations. We routinely identify cyber threats as well as vulnerabilities in our systems and work to address them. Some cyber vulnerabilities take a substantial amount of time to resolve. In addition, efforts to resolve them may be insufficient. Further, these efforts involve costs that can be significant as cyber attack methods continue to rapidly evolve. Cyber attacks can originate from a variety of sources, including external parties who are affiliated with foreign governments or are involved with organized crime or terrorist organizations. Cybersecurity risks also derive from human error, fraud or malice on the part of our employees or third parties. Third parties have, and will likely continue to, attempt to induce employees, lenders (including servicers) or other users of our systems to disclose sensitive information or provide access to our systems or network, or to our data or that of our counterparties or borrowers, and these types of risks may be difficult to detect or prevent. The occurrence of a cyber attack, breach, unauthorized access, misuse, computer virus or other malicious code or other cybersecurity event could jeopardize or result in the unauthorized disclosure, gathering, monitoring, misuse, corruption, loss or destruction of confidential and other information that belongs to us, our lenders, our counterparties, third-party service providers or borrowers that is processed and stored in, and transmitted through, our computer systems and networks. The occurrence of such an event could also result in damage to our software, computers or systems, or otherwise cause interruptions or malfunctions in our, our lenders’, our counterparties’ or third parties’ operations. This could result in significant financial losses, loss of lenders and business opportunities, reputational damage, litigation, regulatory fines, penalties or intervention, reimbursement or other compensatory costs, or otherwise adversely affect our business, financial condition or results of operations. Cyber attacks can occur and persist for an extended period of time without detection. Investigations of cyber attacks are inherently unpredictable, and it takes time to complete an investigation and have full and reliable information. While we are investigating a cyber attack, we do not necessarily know the extent of the harm or how best to remediate it, and we can repeat or compound certain errors or actions before we discover and remediate them. In addition, announcing that a cyber attack has occurred increases the risk of additional cyber attacks, and preparing for this elevated risk can delay the announcement of a cyber attack. All or any of these challenges could further increase the costs and consequences of a cyber attack. These factors may also inhibit our ability to provide rapid, complete and reliable information about a cyber attack to our lenders, counterparties and regulators, as well as the public. In addition, we may be required to expend significant additional resources to modify our protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. Although we maintain insurance coverage relating to cybersecurity risks, our insurance may not be sufficient to provide adequate loss coverage in all circumstances. Because we are interconnected with and dependent on third-party vendors, exchanges, clearing houses, fiscal and paying agents, and other financial intermediaries, including CSS, we could be materially adversely impacted if any of them is subject to a successful cyber attack or other information security event. Third parties with which we do business may also be sources of cybersecurity or other technological risks. We outsource certain functions and these relationships allow for the external storage and processing of our information, as well as lender, counterparty and borrower information, including on cloud-based systems. We also share this type of information with regulatory agencies and their vendors. While we engage in actions to mitigate our exposure resulting from our information-sharing activities, ongoing threats may result in unauthorized access, loss or destruction of data or other cybersecurity incidents with increased costs and consequences to us such as those described above. We routinely transmit and receive personal, confidential and proprietary information by electronic means. In addition, our lenders maintain personal, confidential and proprietary information on systems we provide. We have discussed and worked with lenders, vendors, service providers, counterparties and other third parties to develop secure transmission capabilities and protect against cyber attacks, but we do not have, and may be unable to put in place, secure capabilities with all of our lenders, vendors, service providers, counterparties and other third parties and we may not be able to ensure that these third parties have appropriate controls in place to protect the confidentiality of the information. An interception, misuse or mishandling of personal, confidential or proprietary information being sent to or received from a lender, vendor, service provider, counterparty or other third party could result in legal liability, substantial fines, regulatory action and reputational harm. Furthermore the legal and regulatory environment related to data privacy and cybersecurity is constantly changing. An actual or perceived failure by us, lenders, vendors, service providers, counterparties or other third parties to comply with privacy, data protection and information security laws, regulations, standards, policies and contractual obligations could result in legal liability, substantial fines, regulatory action and reputational harm.

Technology2 | 5.6%

Technology - Risk 1

A failure in our operational systems or infrastructure, or those of third parties, could materially adversely affect our business, impair our liquidity, cause financial losses and harm our reputation.

Shortcomings or failures in our internal processes, people, data management or systems could disrupt our business or have a material adverse effect on our risk management, liquidity, financial statement reliability, financial condition and results of operations. Such a failure could result in legislative or regulatory intervention or sanctions, liability to counterparties, financial losses, business disruptions and damage to our reputation. For example, our business is highly dependent on our ability to manage and process, on a daily basis, an extremely large number of transactions, many of which are highly complex, across numerous and diverse markets that continuously and rapidly change and evolve. These transactions are subject to various legal, accounting and regulatory standards. Our financial, accounting, data processing or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our control, adversely affecting our ability to process these transactions or manage associated data with reliability and integrity. In addition, we rely on information provided by third parties in processing many of our transactions; that information may be incorrect or we may fail to properly manage or analyze it or properly monitor its data quality. We rely upon business processes that are highly dependent on people, technology and equipment, data and the use of numerous complex systems and models to manage our business and produce books and records upon which our financial statements and risk reporting are prepared. This reliance increases the risk that we may be exposed to financial, reputational or other losses as a result of inadequately designed internal processes or data management architecture, inflexible technology or the failure of our systems. In addition, our use of third-party service providers for some of our business and technology functions increases the risk that an operational failure by a third party will adversely affect us. For example, we use third-party service providers for cloud infrastructure services. We have experienced interruptions in access to our platforms as a result of connectivity issues with third-party cloud-based platforms and related data centers and could experience disruptions again if there is a lapse of service, interruption of internet service provider connectivity or damage to third-party cloud-based platforms or any related data centers. Additionally, we may not have sufficient capacity to recover all data and services in the event of an outage or other event resulting in data loss or corruption, which could cause financial losses and reputational harm. While we continue to enhance our technology, infrastructure, operational controls and organizational structure in order to reduce our operational risk, these actions may not be effective to manage these risks and may create additional operational risk and expenses as we execute these enhancements. Our ability to manage and aggregate data may be limited by the effectiveness of our policies, programs, processes, systems and practices that govern how data is acquired, validated, stored, protected, processed and shared. Failure to manage data effectively and to aggregate data in an accurate and timely manner may limit our ability to manage current and emerging risks, as well as to manage changing business needs. We also face the risk of operational failure, termination or capacity constraints of any of the clearing agents, paying agents, exchanges, clearinghouses or other financial intermediaries, including CSS and Freddie Mac, we use to facilitate our securities and derivatives transactions. Moreover, the consolidation and interconnectivity among clearing agents, exchanges and clearing houses increases the risk of operational failure, on both an individual basis and an industry-wide basis. Any such failure, termination or constraint could adversely affect our ability to effect transactions or manage our exposure to risk. Substantially all of our employees and business operations functions are consolidated in two metropolitan areas: Washington, DC and Dallas, Texas. As a result of this concentration of our employees and facilities, a major disruptive event at either location could impact our ability to operate notwithstanding the business continuity plans and facilities that we have in place, including our out-of-region data center for disaster recovery. Moreover, because of the concentration of our employees in the Washington, DC and Dallas metropolitan areas, a regional disruption in one of these areas could prevent our employees from accessing our facilities, working remotely, or communicating with or traveling to other locations. Further, if the frequency, severity or unpredictability of weather-related events in the Washington, DC or Dallas regions increases as a result of changing weather patterns, then these disruptions could occur regularly or last for longer periods of time. Accordingly, the occurrence of one or more major disruptive events could materially adversely affect our ability to conduct our business and lead to financial losses. We may experience significant business disruptions as a result of COVID-19 and its variants. If a significant number of our executives or other employees, or family members for whom they provide care, contract COVID-19 during the same time period, it could materially adversely affect our ability to manage our business, which could have a material adverse effect on our results of operations and financial condition. The risk of executives, other employees or their family members contracting COVID-19 may increase with the further reopening of workplaces and schools. At this time, a significant majority of our employees are working remotely and we currently expect that they will continue to work remotely for the foreseeable future. While our transition to a remote work environment has been successful to date, this remote work arrangement increases the risk that technological, cybersecurity or other operational incidents could materially adversely affect our business operations. This remote work arrangement could also materially adversely affect our ability to maintain effective controls, which could result in material errors to our reported financial results or disclosures that are not complete or accurate.

Technology - Risk 2

Our reliance on CSS and the common securitization platform exposes us to third-party risk.

We rely on CSS and its common securitization platform for the operation of a majority of our single-family securitization activities. Although we jointly own CSS with Freddie Mac, there are limitations on our ability to control CSS. Under our limited liability company agreement for CSS, as currently amended, we and Freddie Mac have limited ability to control CSS Board decisions, even after an exit from conservatorship, including decisions about strategy, business operations and funding. The CSS Board of Managers has two members designated by each GSE, as well as a Board Chair, who is the CSS CEO, and up to three additional Board members. Board actions must be approved by a majority vote and, while we and Freddie Mac both remain in conservatorship, FHFA has the right to designate the Board members not designated by the GSEs, and the Board may not take any actions absent the Chair’s consent. Although the limited liability company agreement would require our approval for certain “material decisions” if either we or Freddie Mac have exited conservatorship, the Board may approve a number of actions even after conservatorship over the objection of the members we and Freddie Mac designate, including: approval of the annual budget and strategic plan for CSS (so long as it does not involve a material business change); withdrawal of capital by a member; and requiring capital contributions necessary to support CSS’s ordinary business operations. It is possible that FHFA may require us to make additional changes to the CSS limited liability company agreement, or may otherwise impose restrictions or provisions relating to CSS or UMBS, that may adversely affect us. We do not currently pay service fees to CSS under our customer services agreement; its operations are funded entirely through capital contributions from Fannie Mae and Freddie Mac pursuant to the limited liability company agreement. During conservatorship, FHFA can direct us to enter into an amendment of the customer services agreement, or enter such an amendment on our behalf, that could provide for a fee structure that would survive an exit from conservatorship absent a further amendment to the customer services agreement, which a majority of the Board would have to approve. Although implementation of any fee changes could require a further amendment to the customer services agreement, we might not have significant leverage to negotiate that amendment and the associated fee changes given our dependence on CSS. Our securitization activities are complex and present significant operational and technological challenges and risks. Any measures we take to mitigate these challenges and risks might not be sufficient to prevent a disruption to our securitization activities. Our business activities could be adversely affected and the market for single-family Fannie Mae MBS could be disrupted if the common securitization platform were to fail or otherwise become unavailable to us or if CSS were unable to perform its obligations to us. Any such failure or unavailability could have a significant adverse impact on our business and could adversely affect the liquidity or market value of our single-family MBS. In addition, a failure by CSS to maintain effective controls and procedures could result in material errors in our reported results or disclosures that are not complete or accurate.

Macro & Political

Total Risks: 3/36 (8%)Below Sector Average

Economy & Political Environment1 | 2.8%

Economy & Political Environment - Risk 1

Changed

Our business and financial results are affected by general economic conditions, including home prices and employment trends, and changes in economic conditions or financial markets may materially adversely affect our business and financial condition.

In general, a prolonged period of slow growth in the U.S. economy or any deterioration in general economic conditions or financial markets could materially adversely affect our results of operations, net worth and financial condition. Our business is significantly affected by the status of the U.S. economy, including home prices and employment trends, as well as economic output levels, interest and inflation rates, and shifts in fiscal and monetary policies. As described in "MD&A-Key Market Economic Indicators" in this report, we currently expect that a modest recession is likely to occur beginning in the first quarter of 2023, resulting in an increase in the unemployment rate. In addition, home prices declined slightly on a national basis in the third quarter of 2022, and we expect additional home price declines in the fourth quarter of 2022 and in 2023. In recent years, the Federal Reserve has purchased a significant amount of mortgage-backed securities issued by us, Freddie Mac and Ginnie Mae. The Federal Reserve began to taper these purchases in November 2021 and concluded its asset purchase program in March 2022. In March 2022, the Federal Reserve stated that it would reinvest principal payments from its holdings of both agency debt and agency mortgage-backed securities into agency mortgage-backed securities, and that it expected to begin reducing its holdings of agency debt and agency mortgage-backed securities. In May 2022, the Federal Reserve announced its plans to reduce its securities holdings over time by reinvesting principal payments from agency debt and agency mortgage-backed securities only to the extent those payments exceed monthly caps; the cap was initially set at $17.5 billion per month beginning on June 1, 2022, and increased to $35 billion per month in September 2022. In addition, the Federal Reserve has raised the target range for the federal funds rate several times this year to address inflation, and in November 2022 stated that it anticipates that ongoing increases in the target range will be appropriate. The strength in inflation also contributed to the sharp rise in mortgage rates in 2022, and mortgage rates may continue to rise. The increase in mortgage interest rates has already led to a slowdown in housing demand and a reduction in our business volume. Due to the recent sharp rise in interest rates and increases in mortgage spreads, we have been issuing MBS with higher coupon yields. Demand for, and liquidity of, these higher MBS coupon yields has been lower than typical demand and liquidity for our MBS. Further rate increases would likely further reduce our business volume and demand for and the liquidity of our MBS, which could adversely affect our results of operations, net worth and financial condition. Further rate increases also could result in greater home price declines, which also could adversely affect our results of operations, net worth and financial condition. Global economic conditions can also adversely affect our business and financial results. Changes or volatility in market conditions resulting from deterioration in or uncertainty regarding global economic conditions can adversely affect the value of our assets, which could materially adversely affect our results of operations, net worth and financial condition. Differing rates of economic recovery from the COVID-19 pandemic around the world along with continued dislocations in supply chains remain a concern for policy makers and financial markets. To the extent global economic conditions negatively affect the U.S. economy, they also could negatively affect the credit performance of the loans in our book of business. Volatility or uncertainty in global or domestic political conditions also can significantly affect economic conditions and financial markets. Global or domestic political unrest also could affect economic growth and financial markets. For example, the Russian war in Ukraine and related economic sanctions imposed on Russia, as well as any further actions by Russia, the United States or others relating to this conflict, may further impact the global economy and financial markets, which could further increase inflationary pressure and interest rates, as well as negatively affect economic growth and result in disruptions in the financial markets. We describe in "Risk Factors" in our 2021 Form 10-K the risks to our business posed by changes in interest rates and changes in spreads. In addition, future changes or disruptions in financial markets could significantly change the amount, mix and cost of funds we obtain, as well as our liquidity position.

Natural and Human Disruptions2 | 5.6%

Natural and Human Disruptions - Risk 1

The occurrence of major natural or other disasters in the United States or its territories and the impact of climate change could negatively impact our credit losses and credit-related expenses.

We conduct our business in the single-family and multifamily residential mortgage markets and own or guarantee the performance of mortgage loans throughout the United States and its territories. The occurrence of a major natural or environmental disaster, terrorist attack, cyber attack, pandemic, or similar event (a “major disruptive event”) in the United States or its territories could negatively impact our credit losses and credit-related expenses in the affected geographic area or, depending on the magnitude, scope and nature of the event, nationally, in a number of ways. The COVID-19 pandemic, for example, has exposed us to substantial credit-related expenses and risk of credit losses. A major disruptive event that either damages or destroys single-family or multifamily real estate securing mortgage loans in our book of business or negatively impacts the ability of borrowers to make principal and interest payments on mortgage loans in our book of business could increase our delinquency rates, default rates and average loan loss severity of our book of business in the affected region or regions. Further, a major disruptive event or a long-lasting increase in the vulnerability of an area to disasters that affects borrowers’ ability to make payments on their mortgages, discourages housing activity, including homebuilding or home buying, or causes a deterioration in housing conditions or the general economy in the affected region could lower the volume of originations in the mortgage market, influence home prices and property values in the affected region or in adjacent regions and increase delinquency rates and default rates. Any of these outcomes could generate significant credit losses and credit-related expenses. Recent years have seen frequent and severe natural disasters in the U.S., including wildfires, hurricanes, high winds, severe flooding, mudslides, and environmental contamination. The frequency and intensity of major weather-related events are indicative of the impact of climate change and this change is expected to persist for the foreseeable future. Population growth and an increase in people living in high-risk areas, such as coastal areas vulnerable to severe storms and flooding, have also increased the impact of these events. Although our financial exposure from these events is mitigated to the extent our book of business is geographically diverse, we remain exposed to risk, particularly in connection with the risk of geographically widespread weather events and changes in weather patterns, as well as geographic areas where our book of business is more heavily concentrated. As a result, any continuation or increase in recent weather trends or their unpredictability, or any single natural disaster of significant scope or intensity, could have a material impact on our results of operations and financial condition. Further, legal or regulatory responses to concerns about global climate change may impact the housing markets and, as a result, our business. Steps to address the risk of more frequent or severe weather events resulting from climate change could result in a potentially disruptive transition away from carbon-intense industries. Such a transition could negatively impact certain industries and regional economies, affecting the ability of borrowers in those industries or regions to pay their mortgage loans.

Natural and Human Disruptions - Risk 2

The COVID-19 pandemic may continue to adversely affect our business and financial results.

The COVID-19 pandemic had a significant adverse effect on the U.S. economy, particularly in the second quarter of 2020. Although certain economic conditions in the United States improved in 2021, the pandemic continues to evolve, as recently experienced with the rapid spread of the Omicron variant, and risks to the U.S. economy from the COVID-19 pandemic remain that could negatively affect our business and financial results. The emergence of other new, more infectious variants of the coronavirus, potential waning of vaccine effectiveness over time and lower vaccination rates in certain areas of the country could lead to new shut-downs or other business restrictions or constraints in various locales and reductions in business activity. If this occurs and negatively affects the economic recovery, it could impact the ability of borrowers and renters to make their monthly payments, which could negatively affect our business and financial results. Factors that may impact the extent to which the COVID-19 pandemic affects our business, financial results and financial condition include: the duration of the pandemic, the prevalence and severity of future outbreaks; the actions taken to contain the virus, or treat its impact, including government actions to mitigate the economic impact of the pandemic and COVID-19 vaccination rates; the effectiveness and availability of COVID-19 vaccines over time; the nature, extent and success of the forbearance, payment deferrals, modifications and other loss mitigation options we provide to borrowers affected by the pandemic; accounting elections and estimates relating to the impact of the COVID-19 pandemic; borrower and renter behavior in response to the pandemic and its economic impact; future economic and operating conditions, including interruptions to economic recovery from outbreaks or increases in COVID-19 cases or severity; and how quickly and to what extent affected borrowers, renters and counterparties recover from the negative economic impact of the pandemic. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in these risk factors.

See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.

FAQ

What are “Risk Factors”?

Risk factors are any situations or occurrences that could make investing in a company risky.

The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.

They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.

It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.

How do companies disclose their risk factors?

Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.

Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.

Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.

According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.

How can I use TipRanks risk factors in my stock research?

Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.

You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.

Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.

A simplified analysis of risk factors is unique to TipRanks.

What are all the risk factor categories?

TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.

1. Financial & Corporate

Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.

2. Legal & Regulatory

Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
Regulation – risks related to compliance, GDPR, and new legislation.
Environmental / Social – risks related to environmental regulation and to data privacy.
Taxation & Government Incentives – risks related to taxation and changes in government incentives.

3. Production

Costs – risks related to costs of production including commodity prices, future contracts, inventory.
Supply Chain – risks related to the company’s suppliers.
Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.

4. Technology & Innovation

Innovation / R&D – risks related to innovation and new product development.
Technology – risks related to the company’s reliance on technology.
Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.

5. Ability to Sell

Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
Competition – risks related to the company’s competition including substitutes.
Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
Brand & Reputation – risks related to the company’s brand and reputation.

6. Macro & Political

Economy & Political Environment – risks related to changes in economic and political conditions.
Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
International Operations – risks related to the global nature of the company.
Capital Markets – risks related to exchange rates and trade, cryptocurrency.

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