Fannie Mae Announces Steps to Increase Capital; Plans Issuance of $7 Billion in Preferred Stock and Reduction in Common Stock Dividend

Fannie Mae (FNM/NYSE) announced today it plans to issue $7 billion of non-convertible preferred stock in one or more offerings in December.

FannieMae.com - December 4, 2007

(PRNewsChannel) / Washington, DC -- Fannie Mae (FNM/NYSE) announced today it plans to issue $7 billion of non-convertible preferred stock in one or more offerings in December. This financing will provide the company with additional capital to conservatively manage increased risk in the housing and credit markets, help meet its mission of providing affordability, liquidity and stability, and free up capital to pursue emerging growth opportunities.

In light of the planned preferred stock issuance, Fannie Mae's Board of Directors, at its regularly scheduled meeting in January, intends to reduce the company's quarterly common stock dividend beginning with the first quarter of 2008 by 30 percent from $0.50 per share to $0.35 per share.

"Fannie Mae has a responsibility to serve the mortgage market in good times and in times like these," said Daniel H. Mudd, President and Chief Executive Officer. "The steps we are taking today are designed to enable us to meet that responsibility with a comprehensive, conservative plan to serve the market and manage our capital. The market needs us to be there -- and we believe this plan will help us do that."

The company is issuing the preferred stock this month as capital market conditions have improved markedly for financial institutions seeking access to the equity securities market. "Several large transactions with relatively attractive terms have been completed since we issued our $500 million of preferred stock in November," said David C. Benson, Fannie Mae Senior Vice President and Treasurer. "We believe we can move quickly with a sizable offering at this time."

The company said these issuances are designed to help Fannie Mae maintain a solid capital position through 2008, and believes they will strengthen Fannie Mae's ability to manage the effects of ongoing volatility in the mortgage credit markets, continue to grow its securitization activities, and pursue attractive investment opportunities.

The company continues to believe that the worsening housing and credit markets, continued losses on certain guaranty contracts, substantial credit-related expenses, and fair value losses on derivatives and securities will adversely affect in a material way the company's fourth quarter 2007 results. In addition, the company continues to believe that conditions in the housing and credit markets, including expected further declines in home prices, will negatively affect the company's financial condition, and results of operations in 2008. Overall economic conditions in 2008 could also materially affect future performance.

The preferred stock offerings will be managed by Lehman Brothers and Merrill Lynch & Co. as joint book-running managers. Copies of the preliminary Offering Circular can be obtained from the underwriters at the following addresses:

Lehman Brothers Inc.
c/o Broadridge
Integrated Distribution Services
1155 Long Island Avenue
Edgewood, NY 11717
(888) 603-5847

Merrill Lynch, Pierce, Fenner & Smith Incorporated
Attention: Prospectus Department
4 World Financial Center, 5th Floor
New York, NY 10080
(212) 449-1000

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Source: FannieMae.com