310522--2/26/2010--FEDERAL_NATIONAL_MORTGAGE_ASSOCIATION_FANNIE

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RISKS RELATING TO OUR BUSINESS The future of our company following termination of the conservatorship and the timing of the conservatorship s end are uncertain. We expect FHFA to request additional funds from Treasury on our behalf to ensure we maintain a positive net worth and avoid mandatory receivership. The dividends and commitment fees we must pay or that accrue on Treasury s investments are substantial and are expected to increase, and we likely will not be able to fund them through net income. Our regulator is authorized or required to place us into receivership under specified conditions, which would result in the liquidation of our assets. Amounts recovered from the liquidation may be insufficient to cover our obligations or liquidation preferences on our preferred stock, or provide any proceeds to common shareholders. We have experienced substantial deterioration in the credit performance of mortgage loans that we own or that back our guaranteed Fannie Mae MBS, which we expect to continue and result in additional credit-related expenses. The credit losses we experience in future periods are likely to be larger, and perhaps substantially larger, than our current combined loss reserves. As a result, we likely will experience credit losses for which we have not yet provisioned. We expect to experience further losses and write-downs relating to our investment securities. Our business activities are significantly restricted by the conservatorship and the senior preferred stock purchase agreement. The conservatorship and investment by Treasury have had, and will continue to have, a material adverse effect on our common and preferred shareholders. Efforts we are required or asked to take by FHFA, other government agencies or Congress in pursuit of providing liquidity, stability and affordability to the mortgage market and providing assistance to struggling homeowners, or in pursuit of other goals, may adversely affect our business, results of operations, financial condition, liquidity and net worth. Limitations on our ability to access the debt capital markets could have a material adverse effect on our ability to fund our operations and generate net interest income. Our liquidity contingency planning may not provide sufficient liquidity to operate our business and meet our obligations if we cannot access the unsecured debt markets. A decrease in our credit ratings would likely have an adverse effect on our ability to issue debt on reasonable terms and trigger additional collateral requirements. Deterioration in the credit quality of, or defaults by, one or more of our institutional counterparties could result in financial losses, business disruption and decreased ability to manage risk. Deterioration in the credit quality of, or defaults by, one or more of our mortgage insurer counterparties could result in nonpayment of claims under mortgage insurance policies, business disruption and increased concentration risk. The loss of business volume from any one of our key lender customers could adversely affect our business and result in a decrease in our revenues. Our reliance on third parties to service our mortgage loans may impede our efforts to keep people in their homes, as well as the re-performance rate of loans we modify. Our adoption of new accounting standards relating to the elimination of QSPEs could have a material adverse effect on our ability to issue financial reports in a timely manner. 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. Operational control weaknesses could materially adversely affect our business, cause financial losses and harm our reputation. Management turnover may impair our ability to manage our business effectively. 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 may rely on the use of models in making estimates about these matters. Failure of our models to produce reliable results may adversely affect our ability to manage risk and make effective business decisions. Changes in option-adjusted spreads or interest rates, or our inability to manage interest rate risk successfully, could adversely affect our net interest income and increase interest rate risk. Our business is subject to laws and regulations that restrict our activities and operations, which may prohibit us from undertaking activities that management believes would benefit our business and limits our ability to diversify our business. We could be required to pay substantial judgments, settlements or other penalties as a result of pending government investigations and civil litigation. If our common stock trades below one dollar per share, or our conservator determines that our securities should not continue to be listed on a national securities exchange, our common and preferred stock could be delisted from the NYSE, which likely would result in a significant decline in trading volume and liquidity, and possibly a decline in price, of our securities. Mortgage fraud could result in significant financial losses and harm to our reputation. RISKS RELATING TO OUR INDUSTRY A continuing, or broader, decline in U.S. home prices or activity in the U.S. housing market would likely cause higher credit losses and credit-related expenses, and lower business volumes. Structural and regulatory changes in the financial services industry may negatively impact our business.

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310522--2/26/2010--FEDERAL_NATIONAL_MORTGAGE_ASSOCIATION_FANNIE_MAE