In 2001, Fannie Mae began a voluntary issuance program to issue large-sized and externally-rated subordinated securities called Subordinated Benchmark Notes. The securities issued under this program, which are subordinated to other Fannie Mae debt securities and Fannie Mae subordinated debt securities issued prior to the institution of the program, also have an interest deferral feature that is triggered if Fannie Mae fails to meet certain capital thresholds.

On September 1, 2005, Fannie Mae entered into a formal commitment with OFHEO (our prior safety and soundness regulator) to continue this program into the future. Under the terms of this formal commitment, commencing January 1, 2006 and every 6 months thereafter, Fannie Mae will submit to OFHEO a subordinated debt management plan that includes any issuance plans for the upcoming six months.

On October 9, 2008, the Federal Housing Finance Agency ("FHFA"), our conservator, announced that it would not be reporting Fannie Mae's subordinated debt levels, and on November 8, 2008, FHFA advised Fannie Mae that, during conservatorship and thereafter until we were directed otherwise, that it was suspending the requirements of the September 2005 agreement with respect to issuance, maintenance, and reporting and disclosure of our qualifying subordinated debt. FHFA further advised us that, during conservatorship, we must continue to submit to FHFA quarterly calculations of our subordinated debt and total capital.

We have been directed by FHFA to continue paying principal and interest on our outstanding subordinated debt during the term of our conservatorship and thereafter until directed otherwise, regardless of our existing capital levels.

Under the terms of the Senior Preferred Stock Purchase Agreement entered into between Fannie Mae and the U.S. Treasury in September 2008 and as amended in May 2008, we are prohibited from issuing additional subordinated debt without the written consent of Treasury. In addition, FHFA has directed us not to issue subordinated debt during the conservatorship and thereafter until directed otherwise.