Fannie Mae Announces Second Subordinated Benchmark Notes--R-- Issue; 5-Year Maturity Subordinated Benchmark Notes will Price Next Week.

Business Editors

WASHINGTON--(BUSINESS WIRE)--April 27, 2001

Fannie Mae (NYSE:FNM
FNM Free National Movement (Bahamas)
FNM Foot and Mouth ), the nation's largest source of financing for home mortgages, today announced that its next offering of Subordinated Benchmark Notes(R) will be $1.5 billion of 5-year securities.

The issue will be launched and priced next week. As with its inaugural issuance in January, Fannie Mae expects this offering to receive ratings of Aa2 from Moody's Investors Service and AA- from Standard & Poor's (S&P).

Fannie Mae has met and exceeded its path-breaking, six-part package of voluntary commitments announced last October to enhance market discipline, transparency and capital adequacy. Subordinated Benchmark Notes are a critical element of the market discipline and capital components of that package.

Timothy Howard, Fannie Mae's Executive Vice President and Chief Financial Officer, said "Today's announcement follows through on our commitment to issue Subordinated Benchmark Notes quarterly in 2001, and further establishes a liquid market for subordinated debt by adding another point on the yield curve."

Last week Fannie Mae's Subordinated Benchmark Notes were assigned a 20 percent risk weighting by the Federal Financial Institutions Examination Council (FFIEC).

The FFIEC noted that its interpretation was based on a clear reading of the agencies' current risk-based capital guidelines. The interpretation is consistent with a proposed revision to the Basle Capital Accord capital framework, and reflects the high current credit quality of the subordinated debt as indicated by the external credit ratings-- "AA-" by S&P and "Aa2" by Moody's.

Fannie Mae priced $1.5 billion of 6.25 percent new issue 10-year Subordinated Benchmark Notes on January 25. The company plans to issue as much as $12 -15 billion in Subordinated Benchmark Notes over the next three years.

Subordinated debt will be issued in an amount that, together with core capital, equals or exceeds 4 percent of on-balance-sheet assets, after adjusting for capital required to support the off-balance-sheet mortgage securities business and adding back the allowance for losses. This level of outstanding subordinated debt is to be achieved by the end of a three-year phase in period.

Fannie Mae's Subordinated Benchmark Notes are distinguished from other types of subordinated debt by the existence of triggers for the deferral of interest payments. The terms of Fannie Mae's Subordinated Benchmark Notes call for interest deferral for up to five years, not to exceed the maturity of the issue, if either of two specific conditions of financial stress occur:

        Fannie Mae's core capital is below 125 percent of its
        critical capital requirement; or Fannie Mae's core capital is
        below its minimum capital requirement and, pursuant to the
        company's request, the U.S. Secretary of the Treasury
        exercises his or her discretionary authority under Section
        304(c) of the company's Charter Act to purchase the company's
        debt obligations.

Howard noted that on December 31, 2000, Fannie Mae's core capital totaled $20.827 billion. Fannie Mae's critical capital on December 31, 2000, was $10.337 billion, so that on that date the company's core capital exceeded the first trigger of 125 percent of critical capital by $7.906 billion.

Capital levels as of December 31, 2000, are the latest capital numbers to be announced by the Office of the Federal Housing Enterprise Oversight. Howard added that for the second trigger to become effective Fannie Mae would need to request that Treasury purchase its securities. Such a request has never been made in the company's history.

Subordinated Benchmark Notes are unsecured subordinated obligations of Fannie Mae. The notes will rank junior in priority of payment to certain defined senior liabilities, which include senior debt securities and liabilities in respect to guarantees on mortgage-backed securities.

At March 31, 2001, Fannie Mae had outstanding total liabilities of approximately $684.9 billion, approximately $683.4 billion of which were senior liabilities.

Subordinated Benchmark Notes are unsecured subordinated obligations of Fannie Mae. The notes will rank junior in priority of payment to certain defined senior liabilities, which include senior debt securities and liabilities in respect to guarantees on mortgage-backed securities.

At March 31, 2001, Fannie Mae had outstanding total liabilities of approximately $684.9 billion, approximately $683.4 billion of which were senior liabilities.

Lehman Brothers Inc.; Morgan Stanley Dean Witter; and Salomon Smith Barney are joint-lead managers. The co-managers include: Bear Stearns & Co. Inc.; Credit Suisse First Boston; Goldman Sachs & Co.; J.P. Morgan Securities Inc.; Merrill Lynch & Co.; and Utendahl.

The designated selling group is comprised of five dealers: ABN AMRO Incorporated; Blaylock & Partners, L.P.; Deutsche Bank; HSBC Securities (USA) Inc.; and UBS Warburg.

When evaluating Subordinated Benchmark Notes, it is important to recognize that, as in the case of other securities issued by Fannie Mae, Subordinated Benchmark Notes are not guaranteed by the United States government.

General information about Subordinated Benchmark Notes and Fannie Mae's Universal Debt Facility 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 $3.0 trillion of mortgage financing for over 37 million families.

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

Benchmark Notes is a registered mark of Fannie Mae. Unauthorized use of these marks is 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."