Fannie Mae Chairman Raines Expects Near-Record $1.4 Trillion in U.S. Residential Mortgage Originations in 2001.

Business Editors

LONDON--(BUSINESS WIRE)--March 2, 2001

Implementation of Voluntary Initiatives on Disclosure and Capital

Puts Fannie Mae at Vanguard of Regulatory Practices

European Investors Participate in First Subordinated Benchmark

Notes Offering

Franklin D. Raines, Chairman and Chief Executive Officer of Fannie Mae (NYSE:FNM
FNM Free National Movement (Bahamas)
FNM Foot and Mouth ), America's largest source of financing for home mortgages, told analysts and investors that the company is poised for another successful year because of a high level of U.S. residential mortgage refinancings and Fannie Mae's exceptional capabilities in interest rate and credit risk management.

Raines also said that the voluntary market measures to enhance market discipline, transparency, and capital announced last October, will benefit investors in Fannie Mae securities by putting the company at the vanguard of international regulatory practices.

Speaking at a press briefing in London in conjunction with Fannie Mae's 17th annual visit with equity and debt investors in the United Kingdom and Europe, Raines said that he expects total originations in the U.S. residential mortgage market to reach $1.4 trillion in 2001, nearly equal to 1998's record level.

Raines noted that refinances should account for close to 45 percent of U.S. mortgage originations in 2001, compared with 20 percent in 2000.

"The current year is shaping up to be another strong one for the U.S. housing market and for Fannie Mae," said Raines. Raines noted that continued excellent results from the company's credit and interest rate risk management strategies would contribute to the company's revenue and earnings growth this year.

Fannie Mae is one of only five companies in the S&P 500 to post double-digit growth in operating earnings per share (EPS) over each of the past 14 years. Raines said that the company has remained on track to achieve its goal of doubling its EPS between 1998 and 2003 by increasing its EPS by more than 15 percent in both 1999 and 2000.

Addressing the company's safety and soundness, Raines said that last October Fannie Mae announced a series of six voluntary initiatives to put the company at the forefront of international regulatory practices.

These measures include the issuance of subordinated debt on a semi-annual basis; maintenance of more than three months' liquidity; implementation of an interim risk-based capital stress test; public disclosure of interest rate risk sensitivity analyses on a monthly basis; public disclosure of credit risk sensitivity analyses on a quarterly basis; and an annual `risk to the government' or financial strength rating from a nationally recognized rating agency.

Raines noted that with these voluntary measures, investors in Fannie Mae securities now have all five of the safety and soundness safeguards recommended by regulators and market watchers worldwide.

These include ongoing supervision by examiners; a minimum capital requirement; a risk-based capital requirement based on a stress test; annual reviews by independent rating agencies; and regular issuance of publicly-traded subordinated debt.

"Fannie Mae's five-sided safety and soundness regime goes beyond the vanguard of such measures for financial institutions and exceeds the recommendations by the internationally-recognized New Basel Capital Accord and the Shipley Commission Report on risk management practices," said Raines.

Raines noted that Fannie Mae's risk-based capital stress test from the 1992 statute is more comprehensive than the one proposed in the New Basel Capital Accord because it focuses on both credit risk and interest rate risk while the Basel Accord focuses almost exclusively on credit risk.

Raines also said that Fannie Mae's combination of monthly interest rate risk and quarterly credit risk disclosures goes well beyond what is recommended by the Working Group on Public Disclosure, a joint U.S. Federal Reserve, Comptroller of the Currency, and Securities and Exchange Commission effort chaired by the retired Chase Manhattan Chairman Walter V. Shipley.

Raines also noted that on February 27th, Fannie Mae announced the second step in the implementation of its Voluntary Initiatives. The Standard & Poor's Corporation (S&P) provided the company with a `risk to the government' credit rating of `AA-'. The S&P rating measures Fannie Mae's financial strength assuming there is no government assistance.

In addition, S&P has incorporated criteria such as an evaluation of Fannie Mae's business fundamentals, including the company's competitive position, evaluation of management and its strategies, and examination of relevant financial measures. At Fannie Mae's request, S&P's `risk to the government' credit rating will be maintained on a continuous, "surveillance" basis.

Significantly, this goes beyond the annual rating called for in the voluntary measures as announced last October.

Timothy Howard, Fannie Mae's Executive Vice President and Chief Financial Officer, said that the issuance of Subordinated Benchmark Notes(R) was another critical component of the company's voluntary agreement. The company successfully completed its first issue of Subordinated Benchmark Notes in January.

That issue was a $1.5 billion security with a 10-year maturity, priced at a spread of 22 basis points above Fannie Mae's senior debt. Nine percent of the offering was sold to European investors.

Moody's Investors Service assigned a rating of Aa2 to the inaugural issue of Fannie Mae's Subordinated Benchmark Notes. The S&P assigned an AA- rating to the same issue.

Explaining this rating, Standard & Poor's noted that it "was based on the company's consistently strong operating performance in recent years, its low risk asset profile, its exceptional access to low cost funding, and its adequate risk-adjusted capitalization."

The S&P also indicated that the rating on the subordinated debt assumes that the government would not intervene to prevent payment default on the instrument.

Howard said that Subordinated Benchmark Notes would continue to be issued quarterly during the course of 2001, and at least semi-annually thereafter.

Howard added that Fannie Mae would issue Subordinated Benchmark Notes in an amount such that, following a three-year phase-in period, the sum of core capital, loss allowances, and outstanding subordinated debt will equal or exceed 4 percent of on-balance sheet assets, after setting aside sufficient capital to support the company's off-balance sheet mortgage-backed securities.

Howard said that based on Fannie Mae's outlook for business growth, the company currently expects to issue $12-$15 billion in Subordinated Benchmark Notes by the close of 2003.

Reporting on Fannie Mae's signature senior debt securities initiative, the noncallable Benchmark Securities(SM) program launched in January 1998, Howard said that as of February 22, the company had issued 34 Benchmark Notes(R) and Benchmark Bonds(SM) as well as 24 reopenings for a total of $188.5 billion.

An additional $11.7 billion of Benchmark Securities were issued concurrent with Fannie Mae's three debt exchange offerings, bringing the total amount of bullet Benchmark Security issues to $200.2 billion. Of this total, 15 percent was purchased by European investors.

Howard noted that during 2001 Fannie Mae expects to issue $130-$140 billion in long-term debt. Of that total, Howard said that more than $75 billion are likely to be Benchmark Notes or Benchmark Bonds.

Fannie Mae is a New York Stock Exchange company and the largest non-bank financial services company in the world. It has $707 billion in Mortgage-Backed Securities outstanding and $675 billion in assets. Fannie Mae operates pursuant to a federal charter and is the nation's largest source of financing for home mortgages.

Over the past 33 years, Fannie Mae has provided $3 trillion of mortgage financing for 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, and Benchmark Bonds and Benchmark Securities are service marks 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."

This release includes certain forward-looking statements based on management's estimates of trends and economic factors in the markets in which the company is active as well as the company's business plans.

Such estimates and plans are subject to change without notice. Future results may vary from results expected by the company if there are significant changes in economic conditions, regulatory or legislative changes affecting Fannie Mae, its competitors, or such markets, or changes in other factors. Please review our Information Statement for more information on forward-looking statements.