Fannie Mae Announces New Subordinated Benchmark Notes Program.

Business Editors/Hi-Tech Writers

WASHINGTON--(BUSINESS WIRE)--Dec. 22, 2000

Fannie Mae (NYSE:FNM
FNM Free National Movement (Bahamas)
FNM Foot and Mouth ), the nation's largest source of financing for home mortgages, today released the details of the subordinated debt funding initiative the company included as part of a package of voluntary enhancements to risk management, capital and disclosure practices announced on October 19, 2000.

Franklin D. Raines, Chairman and Chief Executive Officer of Fannie Mae, said, "Early in 2001, Fannie Mae will begin the issuance of a regular series of large-sized subordinated debt securities known as Subordinated Benchmark Notes(R). Subordinated Benchmark Notes are a critical component of our recently announced capital, disclosure and risk mitigation initiative, which put Fannie Mae at the forefront of safety and soundness protections."

"Fannie Mae's new Subordinated Benchmark Notes will foster a high level of market discipline and serve as an independent barometer of the company's credit quality," Raines added.

Raines said that Fannie Mae would issue Subordinated Benchmark Notes as frequently as quarterly during the course of 2001, and on at least a semi-annual basis thereafter. He said the company expects to issue as much as $15 billion in Subordinated Benchmark Notes over the three-year phase-in period that ends at the close of 2003.

Fannie Mae has appointed Morgan Stanley Dean Witter as advisor and arranger, and has chosen Goldman, Sachs & Co., Morgan Stanley Dean Witter, and Salomon Smith Barney as joint-lead managers for the inaugural transaction expected in early 2001.

Fannie Mae's Subordinated Benchmark Notes have received a prospective rating of Aa2 from Moody's Investor Services and an expected rating of AA- from Standard & Poor's.

Timothy Howard, Fannie Mae's Chief Financial Officer, said that Fannie Mae's Subordinated Benchmark Notes will incorporate various features from the company's highly successful Benchmark Note(R) and Benchmark BondSM activities, including liquidity, consistency of issuance, transparency of pricing, and an active secondary market.

"Investors told us that they value these features in our funding programs, and suggested we design Subordinated Benchmark Notes in a similar vein," Howard added.

Howard said the Subordinated Benchmark Note program has the following key features:

-- Issuance in an amount such that, following a three-year phase-in period, the
sum of core capital and outstanding subordinated debt equals or exceeds 4
percent of on-balance-sheet assets, after setting aside capital sufficient to
support off-balance sheet mortgage-backed securities (MBS);

-- Quarterly issuance during the first year of the program, and at least
semi-annual issuance thereafter, with an active secondary market and external
ratings;

-- Initial maturities that result in a weighted average maturity on outstanding
securities of at least 5 years;

-- Individual new issue deal sizes in a range of $1 billion to $2 billion; and,


-- Use of both new issues and reopenings.

Howard emphasized that Fannie Mae's new Subordinated Benchmark Notes would be in addition to, and not a substitute for, core capital. He noted that the Subordinated Benchmark Notes would provide an additional loss absorbing capital layer, and that their trading level would be an early warning signal of the market's perception of the company's financial strength.

Terms of the Subordinated Benchmark Notes are more fully described in Appendix C of the Universal Debt Facility offering circular. These documents are immediately available on fanniemae.com.

The following highlights certain terms and conditions of the Subordinated Benchmark Notes:

Subordination - The Subordinated Benchmark Notes will be

unsecured subordinated obligations of Fannie Mae issued under

Section 304(e) of the Charter Act, ranking junior in right of

payment to all of Fannie Mae's existing and future obligations

issued or to be issued under Section 304(b) of the Charter Act

and to Fannie Mae's two outstanding subordinated debt

securities. At September 30, 2000, Fannie Mae had outstanding

approximately $607,039 million of debt senior to the

Subordinated Benchmark Notes.

Deferral of Interest - Fannie Mae must defer the payment of

interest on all outstanding Subordinated Benchmark Notes if,

as of the fifth business day prior to an interest payment on

any Subordinated Benchmark Notes:

-- (1)Fannie Mae's "core capital" is below 125% of its

"critical capital" requirement, or,

-- (2)(a) Fannie Mae's "core capital" is below its "minimum

capital" requirement and (b) the Secretary of the

Treasury, acting at the company's request, exercises his

or her discretionary authority pursuant to Section 304(c)

of the Charter Act to purchase the company's debt

obligations.

Fannie Mae plans to use the core, critical and minimum

capital levels most recently verified by the Office of

Federal Housing Enterprise Oversight (OFHEO), pursuant to

its then current methodology, prior to any such interest

payment date to determine whether we must defer interest

on all outstanding Subordinated Benchmark Notes. Specific

definitions of the capital calculations are in Appendix C

of the Universal Debt Facility offering circular.

At September 30, 2000, the company had core capital of

$19,870 million, or 200.3 percent of its critical capital

requirement of $9,918 million, and $489 million above its

minimum capital requirement of $19,381 million as of that

date.

Fannie Mae may not defer interest on any Subordinated

Benchmark Notes for more than five consecutive years nor

beyond the maturity date of any Note.

Accrual of Interest on Deferred Amounts - If Fannie Mae defers

payment of interest on the Subordinated Benchmark Notes,

interest will continue to accrue on the Subordinated Benchmark

Notes and compound at the stated coupon rates of such

Subordinated Benchmark Notes.

Resumption of Interest Payments - Fannie Mae will pay all

deferred interest, and interest thereon, on all Subordinated

Benchmark Notes as soon as, after giving effect to such

payments, Fannie Mae is no longer required to defer interest

under the terms described above, and the company has repaid

all obligations, if any, purchased by the Secretary of the

Treasury. Fannie Mae will make this payment on all

Subordinated Benchmark Notes on the next scheduled interest

payment date of any Subordinated Benchmark Notes, unless it

elects to make the payment earlier. (more) New Subordinated

Benchmark Notes Page Four

No Dividends During Deferral Periods - During periods when the

payment of interest is deferred on the Subordinated Benchmark

Notes, the company may not declare or pay dividends on, or

redeem, purchase or acquire, our common stock or our preferred

stock.

No Acceleration Right - The Subordinated Benchmark Notes will

not contain any provisions permitting the holders to

accelerate the maturity thereof on the occurrence of any

default or other event.

Fannie Mae expects to list Subordinated Benchmark Notes on the Luxembourg Stock Exchange.

Fannie Mae has amended its Universal Debt Facility to incorporate Subordinated Benchmark Notes and additional information on the new securities is currently available on the Company's Web site: http://www.fanniemae.com.

This announcement is neither an offer to sell nor a solicitation of offers to buy any of these securities. Any such offering will be made only by an offering circular and supplement thereto.

Fannie Mae is a New York Stock Exchange company and the largest non-bank financial services company in the world. It operates pursuant to a federal charter and is the nation's largest source of financing for home mortgages.

Fannie Mae is working to shrink the nation's "homeownership gaps" through a $2 trillion "American Dream Commitment" to increase homeownership rates and serve 18 million targeted American families by the end of the decade. Since 1968, Fannie Mae has provided $2.9 trillion of mortgage financing for over 35 million families.

More information about Fannie Mae can be found on the Internet at http://www.fanniemae.com.

Benchmark Notes is a registered mark and Benchmark Bonds is a service mark of Fannie Mae. Unauthorized use of these marks are prohibited.

Style Usage: Fannie Mae's Board of Directors has authorized the company to operate as "Fannie Mae," and the company's stock is now listed on the NYSE as "Fannie Mae." In order to facilitate clarity and avoid confusion, news organizations are asked to refer to the company exclusively as "Fannie Mae."