SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

o  Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Under Rule 14a-12

 

Federal National Mortgage Association

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

1.  Title of each class of securities to which transaction applies:

 

 

 

 

1.  Amount previously paid:

 

2.  Form, Schedule or Registration Statement No.:

 

3.  Filing Party:

 

4.  Date Filed:

 

3900 Wisconsin Avenue NW

Washington, DC 20016

 

November 2, 2007

 

Dear Shareholder:

 

We cordially invite you to attend the annual shareholders’ meeting of the Federal National Mortgage Association (Fannie Mae). The meeting will be held on Friday, December 14, 2007, at 10:00 A.M. (local time) at the Hilton Washington, 1919 Connecticut Avenue, NW, Washington, DC 20009.

 

At the meeting, shareholders will vote on a number of important matters. Our 2006 Annual Report to Shareholders includes our audited financial statements for the year ended December 31, 2006, along with a discussion and analysis of our financial results. Please take the time to review our 2006 Annual Report to Shareholders and to read carefully each of the proposals described in the enclosed proxy statement.

 

Whether or not you plan to attend, please vote by Internet, telephone, or mark, sign, date, and return your proxy card, so that your shares are represented at the meeting.

 

Thank you for your continued support of Fannie Mae.

 

Sincerely,

 

Stephen B. Ashley
Chairman of the Board

 

This Proxy Statement and the accompanying form of proxy

are first being sent to our common shareholders on or about November 2, 2007.

3900 Wisconsin Avenue NW

Washington, DC 20016

 

Notice of Annual Meeting of Shareholders

 

Dear Shareholder:

 

Fannie Mae’s 2007 Annual Meeting of Shareholders will be held on Friday, December 14, 2007, at 10:00 A.M. (local time) at the Hilton Washington, 1919 Connecticut Avenue, NW, in Washington, DC 20009.

 

At the meeting, shareholders will be asked to:

 

 

The close of business on October 22, 2007, is the record date for determining shareholders entitled to notice of, and to vote at, the annual meeting.

 

In accordance with new rules approved by the Securities and Exchange Commission (“SEC”), we sent a Notice of Internet Availability of Proxy Materials on or about November 2, 2007, and provided access to our proxy materials over the Internet, beginning on November 2, 2007, for the holders of record and beneficial owners of our common stock as of the close of business on the record date.

 

Your proxy is important. Whether or not you plan to attend the annual meeting, please vote by Internet, telephone, or mark, sign, date, and return your proxy card, so that your shares will be represented at the annual meeting.

 

By Order of the Board of Directors,

 

Beth A. Wilkinson
Secretary

 

November 2, 2007

 

Table of Contents

 

•	Election of 12 directors (see page 17)
•	Ratification of Deloitte & Touche, LLP, as Fannie Mae’s independent registered public accounting firm for 2007 (see page 61)
•	Approval of an amendment to the Fannie Mae Stock Compensation Plan of 2003 (see page 62)
•	Two shareholder proposals (see page 71)

•	you can attend the annual meeting and vote in person (you will need personal identification for admission to the annual meeting), or
•	you can vote by proxy, whether or not you attend the annual meeting

•	Vote by Internet.  To vote on the Internet, go to www.proxyvote.com to complete an electronic

	proxy card. You will need the 12-digit Control Number included on your Notice of Internet Availability and on your proxy card.
•	Vote by telephone.  To vote by telephone, dial (800) 690-6903 using a touch-tone telephone and follow the recorded instructions. You will need the 12-digit Control Number included on your Notice of Internet Availability and on your proxy card.
•	Vote by Mail.  To vote by mail, complete, sign, date and return your proxy card in the postage-paid envelope provided.

•	you can attend the annual meeting and vote in person only if you (1) present evidence of your ownership of Fannie Mae common stock as of the close of business on the Record Date, such as a bank or brokerage account statement, (2) present personal identification for admission to the meeting, and (3) obtain a proxy from the nominee that holds your shares, or
•	you can vote by proxy, whether or not you attend the annual meeting, in any of the following ways:

	•	Vote by Internet.  To vote on the Internet, go to the internet address provided on your voting instruction card and complete an electronic voting instruction card.
	•	Vote by telephone.  To vote over the telephone, dial the toll-free number provided on your voting instruction card using a touch-tone telephone and follow the recorded instructions.
	•	Vote by Mail.  To vote by mail, complete, sign, date, and return your voting instruction card in the envelope provided.

•	submitting a new proxy over the Internet or by telephone,
•	sending, or presenting in person at the annual meeting, a new, more recently dated proxy or voting instruction card that has been signed by the person executing the prior proxy or voting instruction card,
•	delivering a written statement to the Secretary of Fannie Mae at the address in the Notice of the Annual Meeting stating that the proxy is revoked, or
•	attending the annual meeting and voting in person as described above under “How do I vote?”

•	FOR the director nominees listed on the card,
•	FOR ratification of Deloitte & Touche LLP as Fannie Mae’s independent registered public accounting firm for 2007,
•	FOR approval of an amendment to the Fannie Mae Stock Compensation Plan of 2003, and
•	AGAINST the shareholder proposals.

 

CORPORATE GOVERNANCE

 

Corporate Governance Progress

 

We have made a great deal of progress in improving our corporate governance policies and practices. The Board and management of Fannie Mae continually monitor the latest developments in corporate governance, as well as the most recent laws, rules, and regulations, and have proactively adopted numerous new or revised policies and procedures to ensure that the Company adopts the latest and best corporate governance practices. Some examples of our progress include:

 

 

We continue to evaluate legal and regulatory requirements and emerging best practices and will adopt them as appropriate.

 

Our corporate governance materials, including our Corporate Governance Guidelines, Codes of Conduct, and Board committee charters are available on our Web site at www.fanniemae.com, under “Corporate Governance.” These materials are also available in print to any shareholder upon request. The Board regularly reviews corporate governance developments and modifies its Corporate Governance Guidelines, committee charters, and key practices as warranted.

 

Corporate Governance Guidelines

 

Our Corporate Governance Guidelines (“Guidelines”), as adopted by our Board of Directors, include guidelines for determining director independence and qualifications for directors. The Board regularly reviews corporate governance developments and modifies our Guidelines and the charters of our Board committees as appropriate.

 

Codes of Conduct

 

We have a Code of Conduct for employees, and all of our employees, including our officers, are required to read and certify their compliance with the Code of Conduct annually. The code of ethics for our Chief Executive Officer and senior financial officers that is described in the Sarbanes-Oxley Act of 2002 and provided for in the implementing regulations of the SEC is included in our employee Code of Conduct. The Compliance Committee is responsible under its charter for reviewing the employee Code of Conduct.

 

We also have a Code of Conduct and Conflicts of Interest Policy for Members of the Board of Directors. Directors are required to read and certify their compliance with this code annually. The Nominating and Corporate Governance Committee is responsible for overseeing compliance with the Code of Conduct and Conflict of Interests Policy for Members of the Board of Directors.

 

We will post on our web site any change to or waiver from the employee Code of Conduct for any of our executive officers, and any change to or waiver from the Code of Conduct and Conflict of Interests Policy for Members of the Board of Directors for any of our directors.

 

Director Independence

 

We believe that a central component of good corporate governance is having a Board that is composed of a substantial majority of directors who are independent from management. The Board of Directors has adopted standards for director independence that meet, and in some respects exceed, those of the NYSE.

 

Even if no relationship or transaction exists that would disqualify a director from being “independent” under these standards, the Board does not consider any of our directors to be “independent” unless the Board affirmatively makes a determination that the director has no material relationship with Fannie Mae, either directly or through an organization that has a material relationship with us. A relationship is “material” if, in the judgment of the Board, it would interfere with the director’s independent judgment. In addition, under the NYSE’s listing requirements for audit committees, members of a company’s audit committee must meet additional, heightened independence criteria. Our own independence standards require all of our independent directors to meet these more rigorous criteria.

 

The independence standards for our directors, which are set forth in the Guidelines, are set forth below.

 

Employment.  A director will not be considered independent if, within the preceding five years:

 

 

Auditor Affiliation.  A director will not be considered independent if:

 

 

Compensation Committee Interlocks.  A director will not be considered independent if, within the preceding five years:

 

 

Compensation.  A director will not be considered independent if, within the preceding five years:

 

 

Business Relationships.  A director will not be considered independent if:

 

 

Charitable Contributions.  A director will not be considered independent if the director or the director’s spouse is an executive officer, employee, director or trustee of a nonprofit organization to which we or the Fannie Mae Foundation makes or has made contributions within the preceding three years that, in a single year, were in excess of 5% of the organization’s consolidated gross annual revenues, or $100,000, whichever is less. Amounts contributed under our matching gifts program are not included in the contributions calculated for purposes of this standard.

 

Our independence standards, which in some respects exceed those established by the NYSE, also provide that, after considering the relevant facts and circumstances, our Board may determine in its judgment that a director is independent (in other words, the director has no relationship with us that would interfere with the director’s independent judgment), even though the director does not meet the standards listed above as long, as the determination of independence is consistent with the NYSE definition of “independence.” If neither our guidelines nor the NYSE independence requirements address a particular relationship, the determination of whether the relationship is material, and whether a director is independent, will be made by our Board, based upon the recommendation of the Nominating and Corporate Governance Committee.

 

Our Board of Directors, with the assistance of the Nominating and Corporate Governance Committee, has reviewed the independence of all current Board members under the listing standards of the NYSE, and the standards of independence adopted by the Board contained in our Guidelines, as outlined above. Based on its review, the Board has affirmatively determined that all of our independent directors meet the director independence standards of our Guidelines and the NYSE, and that each of the following 12 directors is independent: Stephen B. Ashley, the non-executive Chairman, Dennis R. Beresford, Louis J. Freeh, Brenda J. Gaines, Karen N. Horn, Bridget A. Macaskill, Joe K. Pickett, Leslie Rahl, John C. Sites, Jr., Greg C. Smith, H. Patrick Swygert, and John K. Wulff.

 

In determining the independence of each of our Board members, the Board of Directors considered the following relationships in addition to those addressed by the standards contained in our Guidelines as set forth above:

 

 

Mr. Mudd is not considered an independent director under the Guidelines because of his position as our Chief Executive Officer.

 

Executive Sessions

 

Our non-management directors meet regularly in executive session without management present. Time for an executive session is reserved at every regularly scheduled Board meeting. Stephen B. Ashley, in his capacity as Chairman of the Board, presides over these sessions. During 2006, our non-management directors met 13 times in executive session.

 

Certain Transactions and Relationships

 

Policies and Procedures Relating to Transactions with Related Persons.  We review relationships and transactions in which we are a participant and in which any of our directors or executive officers, or the immediate family members of either, has an interest to determine whether any of those persons has a material interest in the relationship or transaction. Our current written policies and procedures for review, approval or ratification of relationships or transactions with related persons are set forth in our:

 

 

Our Code of Conduct and Conflicts of Interest Policy for Members of the Board of Directors prohibits our directors from engaging in any conduct or activity that is inconsistent with our best interests. It requires each of our directors to excuse himself or herself from voting on any issue before the Board that could result in a conflict, self-dealing or other circumstance if the director’s position as a director would be detrimental to us or result in a non-competitive, favored or unfair advantage to either the director or the director’s associates. In addition, our directors must disclose to the Chair of the Nominating and Corporate Governance Committee, or another member of the committee, any situation that involves or appears to involve a conflict of interest. This includes, for example, any financial interest of a director, an immediate family member of a director, or a business associate of a director in any transaction being considered by the Board, as well as any financial interest a director may have in an organization doing business with us.

 

Our Board’s delegation of authorities and reservation of powers requires our Board of Directors or the Nominating and Corporate Governance Committee to review and approve any investment, acquisition, financing or other transaction that we engage in directly with any current director or executive officer or any immediate family member or affiliate of a current director or executive officer.

 

Our Code of Conduct for employees requires that we and our employees seek to avoid any actual or apparent conflict between our business interests and the personal interests of our employees or their relatives or associates. An employee who knows or suspects a violation of our Code of Conduct must raise the issue with the employee’s manager, another appropriate member of management, a member of our Human Resources division or our Compliance and Ethics division.

 

Under our Conflict of Interest Policy and Conflict of Interest Procedure for employees, an employee who has a potential conflict of interest must request review and approval of the conflict. Conflicts requiring review and approval include situations where the employee or a close relative of the employee has (1) a financial interest worth more than $100,000 in an entity that does business with or seeks to do business with us or (2) a financial interest worth more than $10,000 in such an entity combined with the ability to control or influence our relationship with the entity. In accordance with its charter, our Nominating and Corporate Governance Committee, in the case of potential conflicts involving our Chief Executive Officer, Chief Business Officer, Chief Operating Officer, Chief Financial Officer, Chief Risk Officer, General Counsel, Chief Audit Executive, or Chief Compliance Officer, must determine whether a conflict exists, any required steps to address the conflict, and whether or not to grant a waiver of the conflict under our Conflict of Interest Policy. In the case of conflicts involving other executive officers, our Chief Executive Officer makes the determination.

Our Employment of Relatives Practice prohibits, among other things, situations where an employee would exercise influence, control, or authority over the employee’s relative’s areas of responsibility or terms of employment, including but not limited to job responsibilities, performance ratings or compensation. Employees have an obligation to disclose the existence of any relation to another current employee prior to applying for any position or engaging in any other work situation that may give rise to prohibited influence, control or authority. We require our directors and executive officers, not less than annually, to describe to us any situation involving a transaction with us in which a director or executive officer could potentially have a personal interest that would require SEC disclosure.

 

Transactions with 5% Shareholders.  Citigroup Inc. (“Citigroup”) beneficially owned more than 5% of the outstanding shares of our common stock as of December 29, 2006. Since January 1, 2006, we have engaged in securities and other financial instrument transactions in the ordinary course of business with Citigroup and its affiliates. We have extensive, multi-billion dollar relationships with Citigroup. Citigroup and/or its affiliates have at times engaged in the following types of transactions and activities: distributing our debt securities as a dealer; committing to sell or buy mortgage-related securities or mortgage loans as a dealer; delivering mortgage loans to us for purchase by our mortgage portfolio or for securitization into Fannie Mae mortgage-backed securities; issuing investments held in our liquid investment portfolio; and acting as a derivatives counterparty or a counterparty involved in other financial instrument or investment transactions with us.

 

A majority of the assets in the Fannie Mae Retirement Plan are managed by Alliance Capital Management L.P. and AllianceBernstein L.P. Alliance Capital. AllianceBernstein beneficially owned more than 5% of the outstanding shares of our common stock as of December 31, 2006, through their management of shares beneficially owned by AXA and its related entities. In addition, an affiliate of AXA has engaged in financial instrument transactions with us.

 

These transactions with our 5% shareholders did not require review, approval or ratification under any of our policies and procedures relating to transactions with related persons. All of these transactions were on substantially the same terms as those prevailing at the time for comparable transactions with unrelated third parties.

 

Transactions with The Duberstein Group.  Kenneth Duberstein, a former director of Fannie Mae, is Chairman and Chief Executive Officer of The Duberstein Group, Inc., an independent strategic planning and consulting firm that has provided services to us since 1991. The Duberstein Group previously provided us consulting services related to legislative and regulatory issues, and associated matters. We entered into a new agreement with the Duberstein Group in June 2007 under which the firm provides us consulting services related to industry and trade issues. During 2006 the firm provided services on an annual fixed-fee basis of $375,000. The fees we paid to The Duberstein Group in 2006 are included in the “2006 Non-Employee Director Compensation Table” under “Proposal 1: Election of Directors—Directors’ Compensation.” Under our new agreement, we pay an annual fixed fee of $400,000.

 

Our entry into a new agreement with The Duberstein Group in 2007 was not considered by the Chair of our Nominating and Corporate Governance Committee, nor did it require approval by our Nominating and Corporate Governance Committee under our Board’s delegation of authorities and reservation of powers because, at the time we entered into the new agreement, Mr. Duberstein was no longer a Fannie Mae director. During 2006, our relationship with Mr. Duberstein’s firm was disclosed to the Chair of our Nominating and Corporate Governance Committee but did not require approval by our Nominating and Corporate Governance Committee under our Board’s delegation of authorities and reservation of powers because they had not yet been implemented.

 

Employment Relationships.  Barbara Spector, the sister of Robert J. Levin, who is our Chief Business Officer, is a non-officer employee in our Enterprise Systems Operations division. The Enterprise Systems Operations division does not report, nor has it ever reported, to Mr. Levin. From January 1, 2006 through September 30, 2007, we paid or awarded Ms. Spector for her services in 2006 and 2007 approximately $264,000 in salary and cash bonuses. For 2006, she also received an aggregate of 171 shares of our common stock in the form of restricted stock that vest over four years. Dividends are paid on restricted common stock at the same rate as dividends on unrestricted common stock. She also receives benefits under our compensation and benefit plans

that are generally available to our employees, including our retirement plan and employee stock ownership plan.

 

Rebecca Senhauser, the wife of William Senhauser, our Chief Compliance Officer, served as a Senior Vice President in our Housing and Community Development division until July 31, 2007. The Housing and Community Development division never reported to Mr. Senhauser. Mr. and Ms. Senhauser recused themselves from any matters that might have directly and significantly affected the other, including compensation and performance evaluation matters. From January 1, 2006 through July 31, 2007, we paid or awarded Ms. Senhauser for her services in 2006 and 2007 approximately $924,000 in salary and cash bonuses and an aggregate of 7,397 shares of our common stock in the form of restricted stock that vest over four years. In 2007, Ms. Senhauser was determined to be entitled to receive an aggregate of 3,965 shares under our performance share program, or PSP, for the unpaid three-year cycles that ended on December 31, 2005 and December 31, 2006, which amount will be paid in the future. Ms. Senhauser received benefits under our compensation and benefit plans that are generally available to our employees, including our retirement plan. As a member of senior management, she also received benefits under our compensation and benefit plans available to senior officers, including payment for tax and financial planning services, participation in the Supplemental Pension Plan and 2003 Supplemental Pension Plan and participation in our elective deferred compensation plan. In July 2007, Ms. Senhauser entered into a separation agreement with us under our management severance program. Under the terms of her separation agreement, Ms. Senhauser received early payment of approximately $154,000 in previously awarded but unpaid cash bonuses and gave up approximately $158,000 in previously awarded but unpaid cash bonuses as a result of her termination of employment. In addition, she became entitled to early vesting of 8,125 shares of restricted stock and payment of 1,439 shares of common stock under our PSP; she forfeited 8,439 shares of restricted stock. Ms. Senhauser’s separation agreement provides that she will be entitled to receive a cash bonus for 2007 if cash bonuses are paid for 2007 under our annual incentive plan, based on corporate performance and prorated for her seven months of service during 2007. Under her separation agreement, Ms. Senhauser also received a severance payment of approximately $396,000, accelerated vesting of options to purchase 4,770 shares of our common stock, medical coverage worth up to an estimated $21,000 and up to $18,000 in outplacement services.

 

Other than the terms of Ms. Senhauser’s separation agreement, which were approved by the Board’s Nominating and Corporate Governance Committee, our employment relationship with and compensation of Mr. Levin’s sister and Mr. Senhauser’s wife did not require review or approval under any of our policies and procedures relating to transactions with related persons.

 

Communications with Directors

 

Interested parties wishing to communicate any concerns or questions about the company to the non- executive Chairman of the Board or to our non-management directors as a group may do so by electronic mail addressed to “board@fanniemae.com,” or by U.S. mail addressed to Fannie Mae Directors, c/o Office of the Corporate Secretary, Fannie Mae, Mail Stop 1H 2S/05, 3900 Wisconsin Avenue NW, Washington, DC 20016-2892. Communications may be addressed to a specific director or directors, or to our independent directors as a group.

 

The Office of the Corporate Secretary is responsible for processing all communications to a director or directors. Communications that are commercial solicitations, ordinary course customer inquiries or complaints, incoherent, or obscene, will not be forwarded to the Board.

 

STOCK OWNERSHIP

 

Beneficial Ownership Table

 

The following table shows the beneficial ownership of our common stock by each of our current directors, director nominees and certain executive officers, and all current directors, director nominees and executive officers as a group, as of October 22, 2007, unless otherwise indicated. As of that date, neither any director, director nominee, or executive officer, nor all directors, director nominees, and executive officers as a group, owned as much as 1% of our outstanding common stock.

 

 

 

 

 

The following table shows the beneficial ownership of our common stock by each holder of more than 5% of our common stock as of the respective dates noted in the footnotes to the table, which is the most recent information provided.

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Our directors and officers file with the SEC reports on their ownership of our stock and on changes in their stock ownership. Based on a review of forms filed during 2006 or with respect to 2006 and on written representations from our directors and officers, we believe that all of our directors and officers filed all required reports and reported all transactions reportable during 2006, except that Ms. St. John, our former Chief Information Officer, reported one transaction late.

 

PROPOSAL 1: ELECTION OF DIRECTORS

 

Composition of the Board of Directors

 

Under the Charter Act, our Board of Directors consists of 18 directors, five of whom are appointed by the President of the United States, with the remainder elected by shareholders. The terms of office of the most recent Presidential appointees to Fannie Mae’s Board expired on May 25, 2004, and the President has not reappointed or replaced any of them. Pursuant to the Charter Act, those five Board positions will remain open unless and until the President names new appointees.

 

We engage a third-party executive search firm to identify potential director nominees. In addition, members of our Board of Directors and members of our executive management from time to time recommend a person for consideration as a potential director nominee. All potential director nominees are then evaluated by the third-party executive search firm, and we also engage outside counsel to help evaluate the independence of potential director nominees. All of the director nominees who joined the Board since the last annual meeting of shareholders were recommended to the Nominating and Corporate Governance Committee by the third-party executive search firm, except that (1) Dennis R. Beresford also was recommended by our Chief Financial Officer at the time and by a non-management member of the Audit Committee and (2) John C. Sites, Jr., was recommended by our Chief Business Officer.

 

The Nominating and Corporate Governance Committee recommends nominees for election as Fannie Mae directors to the Board for consideration. Guidelines for the consideration of all director candidates are contained in the Nominating and Corporate Governance Committee charter and in our Guidelines, and there is no separate policy governing the consideration of director candidates recommended by shareholders.

 

It is the policy of the Board that a substantial majority of the seated Fannie Mae directors will be independent, in accordance with the standards adopted by the Board. In addition, the Board, as a group, must be knowledgeable in business, finance, capital markets, accounting, risk management, public policy, mortgage lending, real estate, low-income housing, homebuilding, regulation of financial institutions, and any other areas that may be relevant to the safe and sound operation of Fannie Mae. The Nominating and Corporate Governance Committee seeks out Board members who possess:

 

 

The Nominating and Corporate Governance Committee also considers whether a prospective candidate for the Board has the ability to attend meetings and fully participate in the activities of the Board, including whether the candidate’s service on outside boards will permit the candidate sufficient time to devote to responsibilities associated with being a Fannie Mae director.

 

In considering members of the Board for re-nomination, the Nominating and Corporate Governance Committee takes into consideration:

 

 

 

Upon the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors has nominated the 12 persons identified below to stand for election at the 2007 annual meeting. You may not vote for more than the number of nominees for election as directors. Under the Charter Act, each director is elected or appointed for a term ending on the date of our next shareholders’ meeting. In accordance with the Charter Act and our bylaws, each nominee for director who is elected will serve a term ending on the date of the annual meeting of shareholders in 2008 and until the director’s successor is chosen and qualified or, if earlier, until the director dies, resigns, retires or is removed from office in accordance with the law.

 

Mr. Pickett has elected not to stand for re-election when his term expires at the annual meeting. As a result, there will be six vacancies on the Board of Directors after the meeting. There are no nominees for five of these vacancies because, as described above, only the U.S. President can fill these vacancies. There is one fewer nominee for director than the number of directors to be elected by shareholders under the Charter Act because we are still engaged in the process of identifying an appropriate and qualified candidate. If we find a qualified individual with appropriate skills to fill the vacancy, then we anticipate that, following the Nominating and Corporate Governance Committee’s recommendation of the candidate to serve as a director, the Board will appoint the person to fill the vacancy. The shareholders will not elect the candidate because, under the Charter Act, a vacancy on the Board may be filled by the affirmative vote of the majority of the directors then serving as directors. A director who is elected by the Board to fill a vacancy on the Board will serve as a director until the next annual meeting of shareholders and until the director’s successor is chosen and qualified or, if earlier until the director dies, resigns, retires or is removed from office in accordance with the law. Any shareholder who wishes to submit a candidate for consideration by the Nominating and Corporate Governance Committee should submit written notice as described below under “Shareholder Proposals and Director Nominations for 2008.”

 

Because the number of director nominees does not exceed the number of directors to be elected, each nominee for director will be elected if the votes cast FOR the director exceed the votes cast AGAINST the director. In addition, although our Board consists of 18 directors under the Charter Act, proxies cannot be voted for a greater number of persons than the 12 nominees named below under “Nominees for Election.”

 

Each director nominee has consented to being named in this proxy statement and to serve if elected. If any nominee should become unwilling or unable to serve as a director, the proxy holders, in the absence of contrary instruction, will vote the proxies for the election of such persons as the Board of Directors designates. In addition, each director nominee has submitted a contingent irrevocable resignation that will become effective if the nominee does not receive a majority of the votes cast and, based on the recommendation of the Nominating and Corporate Governance Committee of the Board, the Board decides to accept the nominee’s resignation.

 

Nominees for Election

 

The following section presents information provided by the nominees about their principal occupation, business experience, directorships, and other matters.

 

The Board of Directors recommends
that shareholders vote FOR each of the nominees.

 

 

 

 

 

Meetings of the Board of Directors

 

The Board of Directors met 22 times during 2006. During 2006, all of our current directors attended at least 75% of the total number of meetings of the Board of Directors and Board committees on which he or she served.

 

We did not hold an annual meeting of shareholders in 2005 or 2006. Following our last annual meeting of shareholders in 2004, we adopted a policy stating that all directors are expected to attend the annual meeting of shareholders in person.

 

Committees of the Board of Directors

 

The standing committees of the Board are:

 

 

All of the committees (other than the Executive Committee) consist entirely of independent directors. In addition, these committees are governed by written charters, copies of which are posted on our Web site, www.fanniemae.com, under “Corporate Governance,” and are available in print free of charge to any shareholder upon request.

 

The Audit Committee oversees:

 

 

The Audit Committee met 19 times in 2006.

 

The Compensation Committee discharges the responsibilities of the Board relating to compensation of our executives and among other things:

 

 

The Compensation Committee met 16 times in 2006.

 

The Compliance Committee both monitors and coordinates our compliance with the provisions of the Consent Order entered into between the Office of Federal Housing Enterprise Oversight (“OFHEO”) and us on May 23, 2006 (the “OFHEO Consent Order”), and oversees our compliance with legal and regulatory requirements. The Compliance Committee met 7 times in 2006.

 

The Executive Committee has all the authority of the Board during the periods between Board meetings, except for certain specified powers listed in our bylaws. The Executive Committee did not meet in 2006.

 

The Housing and Community Finance Committee oversees our single-family mortgage, capital markets and housing and community development divisions, as well as the company’s contribution to affordable housing and community development. In addition, the Housing and Community Finance Committee monitors public policy surrounding housing issues. The Housing and Community Finance Committee met 15 times in 2006.

 

The Nominating and Corporate Governance Committee proposes to the board lists of names for consideration as nominees for election by the shareholders as Fannie Mae directors and develops and recommends to the Board corporate governance guidelines and plays a leadership role in shaping the corporation’s corporate governance. The Nominating and Corporate Governance Committee oversees the evaluation of the Board and its committees, including evaluating the adequacy and appropriateness of the content, format and distribution of the written information, and evaluating reports and other material provided to the Board. The Nominating and Corporate Governance Committee is also responsible for recommending compensation for non-management directors on the Board to the Board of Directors and reviews non-management director compensation once a year. The Nominating and Corporate Governance Committee met 9 times in 2006.

 

The Risk Policy and Capital Committee assists the Board in overseeing our capital management and risk management, including overseeing the management of credit risk, market risk, liquidity risk, and operational risk. The Risk Policy and Capital Committee met 10 times in 2006.

 

The Technology and Operations Committee provides oversight of Fannie Mae’s technology and operations environment, including our infrastructure, organization, and key controls. The Technology and Operations Committee met 5 times in 2006.

 

The following table shows the current membership of each committee:

 

 

 

 

Directors’ Compensation

 

Annual compensation for our non-management directors for 2006 consisted of cash compensation and equity compensation, in the form of restricted stock awards. Each of these components is described in more detail below. The total 2006 compensation for our non-management directors is shown in the table below. Mr. Mudd, who is our only director who is an employee of Fannie Mae, does not receive the benefits provided to our non-management directors other than those provided under the Matching Gifts Program, which is available to every Fannie Mae employee, and those available under the Director’s Charitable Award Program.

 

2006 Non-Employee Director Compensation Table

 

 

 

 

Cash Compensation.  Effective January 1, 2008, our directors will be paid a retainer at an annual rate of $100,000. Committee chairs will receive an additional retainer at an annual rate of $25,000 for the Audit Committee chair and $15,000 for all other committee chairs. Our Board has the authority to change or otherwise vary the amount of cash compensation to non-management directors. During 2006, our non-management directors, with the exception of the non-executive Chairman of our Board, were paid a retainer at an annual rate of $35,000, plus $1,500 for attending each Board or Board committee meeting in person or by telephone. Committee chairs received an additional retainer at an annual rate of $10,000, plus an additional $500 for each committee meeting chaired in person and $300 for each telephonic committee meeting chaired. In recognition of the substantial amount of time and effort necessary to fulfill the duties of non-executive Chairman of the Board during 2006, Mr. Ashley received an annual fee of $500,000.

 

Restricted Stock Awards.  We currently have a restricted stock award program for non-management directors. This program provides for the periodic awards of restricted common stock vesting in annual installments provided the director continues to serve on the Board of Directors. If the proposed amendment to the Fannie Mae Stock Compensation Plan of 2003, which we refer to as the “2003 Plan” or the “Plan,” described in Proposal 3 is approved, this program and the option program for directors (see “Stock Option Awards” below) will be replaced with the program described under “Non-Management Director Restricted Stock” in “Proposal 3: Approval of Amendment to Fannie Mae Stock Compensation Plan of 2003.”

 

As part of the current program for periodic awards of restricted stock, we granted 871 shares of restricted common stock to each non-management director in May 2001, under the Fannie Mae Stock Compensation Plan of 1993, which we refer to as the “1993 Plan.” These shares vest on the day before each annual meeting at the rate of 20% each year. Each director who joined the Board through May 2006 received a pro rata grant, based on the time remaining in five-year cycle.

 

Under the 2003 Plan the first award of restricted stock was scheduled to be made at the 2006 annual meeting. This award was not made and will not be made if the proposed amendment to the 2003 Plan described in Proposal 3 is approved. The award was to have a fair market value of $75,000, and the shares were to vest on the day before each annual meeting at the rate of 25% each year. Directors who joined the Board before the next grant in 2010 were to receive a pro rata grant.

 

Under both the 1993 Plan and the 2003 Plan, vesting of shares accelerates upon departure from the Board due to death, disability, or, for elected directors, not being renominated after reaching age 70. Otherwise, directors forfeit unvested shares upon leaving the Board.

 

In addition, in October 2003 we granted 2,600 shares of restricted common stock to each non-management director who was a member of the Board at that time, scheduled to vest in four equal annual installments beginning with the May 2004 annual meeting. We subsequently made pro rata grants to non-management directors who joined the Board after October 2003 and prior to the scheduled time of the last vesting in May 2007.

 

In December 2006, the Board approved the vesting of restricted stock that would have vested at the 2005 and 2006 annual meetings if such meetings had been held.

Stock Option Awards.  Under the terms of the 2003 Plan, each non-management director is granted an annual nonqualified stock option to purchase 4,000 shares of common stock immediately following the annual meeting of shareholders at the fair market value on the date of grant. A non-management director elected between annual meetings receives a nonqualified stock option to purchase at the fair market value on the date of grant a pro rata number of shares based on the time remaining until the next annual meeting. Each option will expire ten years after the date of grant and vests in four equal annual installments beginning on the first anniversary of the grant, subject to accelerated vesting upon the director’s departure from the Board of Directors. Non-management directors generally have one year to exercise the options granted under the 2003 Plan when they leave the Board. Options granted on or prior to May 20, 2003 under the 1993 Plan must generally be exercised within three months after a director leaves the Board.

 

If the proposed amendment to the 2003 Plan described in Proposal 3 is approved, no annual stock option awards will be made to the non-management directors with respect to annual meetings that would have been held in 2005 or 2006. In addition, if the amendment to the 2003 Plan is approved, automatic option grants for 2007 and future years will be discontinued.

 

Stock Ownership Guidelines for Directors.  Under our Guidelines, each non-management director is expected to own shares of our common stock (including restricted stock, restricted stock units, or deferred shares) that have a total value equal to at least five times the annual cash retainer for service as a member of our Board (currently, five times $35,000, or $175,000). Directors have five years from the time of election or appointment to reach the expected ownership level, excluding trading blackout periods we impose. Effective January 1, 2008, the cash retainer for each non-management director will increase to an annual rate of $100,000. The directors will have five years to increase the value of their common stock ownership from the current level of $175,000 to $500,000.

 

In addition, under our Guidelines, a non-management director may not sell or otherwise transfer shares of our common stock received pursuant to his or her service as a Board member (other than shares received in lieu of the director’s annual cash retainer) until the director has served on the Board for a period of five years or until he or she leaves the Board.

 

Fannie Mae Director’s Charitable Award Program.  In 1992, we established our Director’s Charitable Award Program. The purpose of the program is to acknowledge the service of our directors, recognize our own interest and that of our directors in supporting worthy institutions, and enhance our director benefit program to enable us to continue to attract and retain directors of the highest caliber. Under the program, we make donations upon the death of a director to up to five charitable organizations or educational institutions of the director’s choice. We donate $100,000 for every year of service by a director up to a maximum of $1,000,000. To be eligible to receive a donation, a recommended organization must be an educational institution or charitable organization and must qualify to receive tax-deductible donations under the Internal Revenue Code of 1986. The program is generally funded by life insurance contracts on the lives of participating directors. The Board of Directors may elect to amend, suspend, or terminate the program at any time.

 

Matching Gifts.  To further our support for charitable giving, non-employee directors are able to participate in the Matching Gifts Program of the Fannie Mae Foundation on the same terms as our employees.

 

Under this program, gifts made by employees and directors to 501(c)(3) charities are matched, up to an aggregate total of $10,500 in any calendar year, including up to $500 that may be matched on a 2-for-1 basis.

 

Deferred Compensation.  We have deferred compensation plans in which non-management directors can participate. Non-management directors may irrevocably elect to defer up to 100% of their annual retainer and all fees payable to them in their capacity as a member of the Board in any calendar year into the deferred compensation plan. Plan participants receive an investment return on the deferred funds as if the funds were invested in a hypothetical portfolio chosen by the participant from among the available investment options, which are described in more detail below under “Nonqualified Deferred Compensation—Elective Deferred Compensation Plans.” Prior to the deferral, plan participants must elect to receive the deferred funds either (1) in a lump sum, (2) in approximately equal annual installments, or (3) in an initial payment followed by approximately equal annual installments, with a maximum of 15 installments. Deferral elections generally

must be made prior to the year in which the compensation otherwise would have been paid, and payments will be made as specified in the deferral election. Participants in the plan are unsecured creditors of Fannie Mae and are paid from our general assets.

 

If the proposed amendment to the 2003 Plan described in Proposal 3 is approved, non-management directors also will be able to elect to defer receipt of any awards of restricted stock units. In addition, non-management directors will be able to elect to convert their annual retainer to deferred shares. Additional information about these deferral rights is included in “Proposal 3: Approval of Amendment to Fannie Mae Stock Compensation Plan of 2003—Description of Plan—Deferred Compensation.”

 

Other Expenses.  We also pay for or reimburse directors for out-of-pocket expenses incurred in connection with their service on the Board, including travel to and from our meetings, accommodations, meals, and training.

 

EXECUTIVE OFFICERS

 

Our executive officers, other than Daniel H. Mudd, who is a nominee for election to the Board of Directors and whose background is described above, have provided the following information about their principal occupation, business experience, and other matters.

 

 

 

 

 

Under our bylaws, each officer holds office until his or her successor is chosen and qualified or, if earlier, until he or she dies, resigns, retires or is removed from office by the Board of Directors.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

This section discusses the principles underlying our compensation policies and decisions relating to our named executives for 2006 identified below.

 

 

What are the goals of our compensation program?

 

Our compensation philosophy provides that our compensation program should attract, retain, and reward the skilled talent needed to successfully manage a leading financial services company.

 

Compensation must also be consistent with the Charter Act, which requires that compensation be reasonable and comparable with the compensation of executives performing similar duties in similar businesses.

 

Consistent with our compensation philosophy and the Charter Act, our compensation program is designed to:

 

 

Our company goals for our cash bonuses under our annual incentive plan for 2006 are set forth below under “How did we determine the amount of each element of 2006 cash and stock compensation?”

 

How does comparability factor into our executive compensation decisions?

 

Both the Charter Act and our compensation philosophy require that we consider comparability in setting executive compensation. We determine comparability by reviewing executive compensation practices of a group of high-quality, diversified financial services companies, which we refer to as our comparator group. Among this group, our earning assets are substantially larger than the median, but in many cases our operations are less diverse. These companies have pay practices similar to ours and we compete with them for executive talent. The members of the comparator group are initially identified by management with the assistance of its outside executive compensation consultant, Johnson Associates, Inc. The composition of the comparator group is then reviewed and approved by the Compensation Committee. In 2006, we used the same comparator group as we did in 2005.

The members of our comparator group for 2006 are identified in the table below.

 

 

For 2006 compensation, we used as a guideline the median, or 50th percentile, of the total of salary, bonus, and equity compensation paid at companies in our comparator group.

 

In determining an executive’s compensation, the Compensation Committee and Board were free to vary above or below the median if they determined it was appropriate as a result of factors such as the experience and expertise of the executive, our need for specific skill sets, and the executive’s performance. For particular positions, data from companies outside our comparator group were used to provide a broader perspective and ensure that we had a comprehensive view of the market for executives with certain specific skills or experience.

 

How do we use outside executive compensation consultants?

 

Management receives advice on executive compensation matters from the executive compensation consulting firm of Johnson Associates, Inc. Johnson Associates provides no other services to Fannie Mae.

 

The Board of Directors retains the executive compensation consulting firm of Semler Brossy Consulting Group to provide independent executive and board compensation information and advice. Semler Brossy provides no other services to Fannie Mae.

 

What were the elements of compensation for our named executives for 2006, and why did we pay those elements?

 

Compensation for our named executives for 2006 consisted of salaries, cash incentive bonuses, long-term incentive awards, employee benefits, and perquisites. We provided this compensation mix in order to maintain a competitive compensation program and to reinforce our corporate objectives. Salary was paid on a bi-weekly basis throughout the year, while annual bonuses and long-term incentive awards relating to 2006 performance were paid or granted in January 2007.

 

Salary, Bonuses, and Long-Term Incentive Awards.

 

 

Employee Benefits.  Our employee benefits are a fundamental part of our compensation program, and serve as an important tool in recruiting and retaining executives.

 

 

 

Perquisites.  In 2006, we provided our named executives relatively limited perquisites not available to our general employee population, based primarily on business needs. We also provided perquisites to the extent appropriate and reasonable for retaining and attracting executives. These perquisites, and recent changes we have made to eliminate or require reimbursement of certain perquisites, are discussed below under “How and why have we changed our policy on perquisites?”

 

How do we look at salary, bonuses, and long-term incentive awards for 2006?

 

The following chart shows information about the salary, bonuses, and long-term incentive awards that were paid or granted to the named executives for 2006.

 

Compensation Paid or Granted for 2006⁽¹⁾

 

 

 

 

 

How did we determine the amount of each element of 2006 cash and stock compensation?

 

Overview of the Process for Determining Compensation.  The Board (or, in the case of Mr. Mudd, the independent members of the Board), based on the recommendations of the Compensation Committee, determines compensation for our named executives. In making recommendations to the Board for 2006 compensation, the Compensation Committee considered our Chief Executive Officer’s assessment of our other named executives’ performance and his compensation recommendation for these executives. In making a recommendation to the Board for Mr. Mudd, the Compensation Committee considered an assessment of his performance by the Chairman of our Board, Mr. Mudd’s self-evaluation, and the results of a 360-degree survey of his leadership qualities. In making decisions and recommendations, the Compensation Committee also considered the market data provided by the compensation consultants for management and the Board, the importance of each executive’s role in the company, competition for individuals with the experience and skill sets of each executive and related market factors, retention considerations, and the executive’s experience and contributions to the company as a whole during the preceding year.

 

In addition, the Compensation Committee considered the entire compensation package for each named executive, taking into account—through review of a summary sheet—the named executive’s outstanding stock options, restricted shares, and performance share balances; existing severance arrangements with the executive, if any; and other benefits (such as life insurance, pension plan participation, and health benefits) available to the executive.

 

Determination of Salaries, Bonus, and Long-Term Incentive Awards

 

 

 

 

Achievement of these corporate performance goals affected cash bonuses for management-level employees throughout Fannie Mae, except for employees in our internal audit and compliance and ethics departments. These employees’ bonuses were subject to the achievement of goals tailored to their departments’ unique roles.

 

In conjunction with the establishment of corporate performance goals, in April 2006 the Compensation Committee approved individual bonus award targets for each named executive. Award targets for Mr. Mudd, Mr. Williams, and Mr. Levin were unchanged from those set in November 2005. The potential bonus that could have been paid to each named executive at the target level of achievement against the corporate and individual goals for 2006 is shown in the “Grants of Plan-Based Awards” table under “Compensation Tables” below. Payment significantly above target would occur only in a year in which both the company and the individual performed exceptionally well against goals.

 

In 2006, management provided the Compensation Committee with a mid-year update on progress against the corporate performance goals. In January 2007, the Compensation Committee, with input from other Board committees, evaluated corporate performance against the corporate performance goals and determined that corporate performance for 2006 was at 110% of target.

 

For 2006, the Compensation Committee considered that Fannie Mae, among other achievements:

 

 

While the Compensation Committee assesses each goal separately, it does not follow a pre-established formula for assigning a weight to the corporate performance goals.

 

The Board (and, in the case of Mr. Mudd, the independent members of the Board) then determined, based on the recommendation of the Compensation Committee, the individual bonus amounts for each named executive based on the officer’s individual performance. These amounts are shown in the “Summary Compensation Table” under “Compensation Tables” below.

 

 

Is there any regulatory oversight of our compensation process?

 

Yes, our regulator, OFHEO, has a role in the compensation of our named executives and certain other officers identified by OFHEO. As long as the Fannie Mae Capital Restoration Plan is in effect, we must obtain OFHEO approval for non-salary compensation actions that relate to this group of executives. In addition,

OFHEO must approve any termination benefits we wish to offer to this group of executives. We also notify OFHEO of all compensation programs intended primarily for executives.

 

What are our practices for determining when we grant equity awards?

 

All restricted stock or restricted stock unit awards to senior executives, including the named executives, are granted on the date of approval by the Board or Compensation Committee or, if later, on the date the executive commences employment with us. We made one exception to this practice, and that exception was designed to assure that the number of shares of restricted stock or units of restricted stock our executives received as an equity award in 2006 would be the smaller of two possible amounts. Specifically, in February 2006, the Board was aware that the report by Paul, Weiss, Rifkind, Wharton & Garrison LLP on the results of its review of Fannie Mae would be released in the near future. The Board also was aware that, depending on the content of the report, its release could result in a change in the market value of Fannie Mae’s stock. The Board therefore structured the annual awards of restricted stock and restricted stock units to senior executives in a manner that would ensure that senior executives would receive the appropriate value in shares. To accomplish this, each equity award was made in a dollar-denominated amount, with the number of shares or units granted equal to the smaller of two amounts: (1) the dollar amount of the award divided by the trading price of Fannie Mae’s common stock at the time the award was approved and (2) the dollar amount of the award divided by the average trading price during the five trading days following the filing of our next Form 12b-25. Because the Form 12b-25 filing included a summary of the results of the report of Paul, Weiss report, our Board’s decision to defer the determination of the number of shares or units granted to our executives ensured that the results of the Paul, Weiss report would be publicly available prior to the date on which the applicable trading price of our common stock was determined.

 

Stock awards to employees below the level of Senior Vice President are allocated by the Chief Executive Officer pursuant to a delegation from the Compensation Committee. We are not currently granting stock options to employees and do not expect to grant options before we become a current SEC filer.

 

What are our stock ownership requirements?

 

We encourage our directors, officers, and other employees to own our common stock in order to align their interests with the interests of shareholders. We also require our officers above the level of vice president to own our common stock.

 

Our Chief Executive Officer is required to hold shares of our common stock with a value equal to five times his base salary. In addition, our Chief Executive Officer’s long-term incentive award for 2006 included a separate stock ownership requirement described above in footnote 2 to the “Compensation Paid or Granted for 2006” table. Our other named executives are required to hold our common stock with a value equal to three times base salary. Common stock held to meet the ownership requirements may be in the form of restricted stock, restricted stock units, or deferred shares.

 

Our Chief Executive Officer and other named executives have five years from the time of appointment to reach the required ownership level. In addition to our stock ownership requirements, our officers are prohibited from purchasing and selling derivative securities related to our equity securities, including warrants, puts, and calls, or from dealing in any derivative securities other than pursuant to our stock-based benefit plans.

 

How and why have we changed our policy on perquisites?

 

Historically, we have provided a limited number of perquisites to our named executives, and in February 2007, we further limited the perquisites we provide. During 2006, Fannie Mae provided the named executives with perquisites that included a financial counseling benefit, personal use of certain of Fannie Mae’s cars and drivers, excess personal liability insurance, annual physical exams, executive life insurance, airline club memberships, and dining services, as well as tax gross-ups related to the excess personal liability and life insurance benefit. In addition, all members of our Board of Directors, including Mr. Mudd, participated in the Director’s Charitable Award program. We have also agreed to reimburse Mr. Mudd’s legal expenses incurred in connection with any subsequent negotiation, amendment, and discussion of his employment agreement.

In February 2007, we evaluated these perquisites and eliminated the following:

 

 

Our policy provides that perquisites should be based on business needs, and that existing perquisites should be evaluated from time to time and eliminated if no longer appropriate.

 

What decisions have we made with regard to our Performance Share Program?

 

Prior to 2005, we had a practice of granting awards under our performance share program, or PSP. These awards entitled executives to receive shares of common stock based upon our meeting corporate financial and qualitative performance objectives over three-year periods, or “performance cycles.” In early 2005, in light of our need to restate our financial results and our lack of current financial statements, our Board determined that it was not appropriate at that time to begin a new performance cycle under the PSP. For similar reasons, the Board did not begin a new performance cycle in 2006 and has not begun a new performance cycle in 2007.

 

Under our PSP, in January of each year the Compensation Committee generally determined our achievement of corporate performance objectives measured against the goals for the three-year performance cycle that ended in the prior year. The level of achievement determined the payout of the performance shares and the shares were paid out to executives in two annual installments. As of early 2005, we had paid the first installment, but not the second installment, of PSP awards for the 2001-2003 performance cycle. For the reasons stated above, the Board determined in early 2005 to defer the payout of the second installment of the 2001-2003 performance cycle and to defer the determination of the 2002-2004 performance cycle.

 

After we restated our prior period financial statements and completed our 2004 financial statements, on February 15, 2007, our Board reviewed qualitative and quantitative analyses of our performance from 2001 to 2004. Based on these assessments, our Board determined that:

 

 

On June 15, 2007, our Board reviewed available quantitative and qualitative analyses of our performance from 2003 to 2006. Based on its review, the Board made a decision to pay awards for the 2003-2005 performance cycle at 40% of the original target award and decided to pay awards for the 2004-2006 performance cycle at 47.5% of the original target award. The highest level at which awards for these two cycles could have been paid if performance met or exceeded the maximum objectives was 150% of the original target award. These payouts reflect the Board’s determination that our performance during these cycles with respect to the financial goals did not meet threshold performance levels and our performance during these cycles with respect to the qualitative goals was between the threshold and target performance levels.

 

The table below shows the number of shares of common stock to which each named executive who was employed by Fannie Mae as of December 31, 2006 is entitled based upon the Board’s final determination on September 18, 2007. The shares will be paid in the future.

Performance Share Program Payouts

 

 

 

 

What is our compensation recoupment policy?

 

Under the OFHEO Consent Order, we have agreed that any new employment contracts with named executives will include an escrow of certain payments if OFHEO or any other agency has communicated allegations of misconduct concerning the named executive’s official duties at Fannie Mae and OFHEO has directed us to escrow such funds. In addition, we have agreed to include appropriate provisions in new employment agreements to address terminations for cause and recovery of compensation paid to executives where there are proven allegations of misconduct. All future employment agreements with named executives will contain these provisions.

 

What written agreements do we have with our named executives that provide for continued employment?

 

On November 15, 2005, we entered into an employment agreement with Mr. Mudd, effective June 1, 2005 when he was appointed our President and Chief Executive Officer. We entered into a letter agreement with Mr. Levin, dated June 19, 1990, that provides for severance in connection with a termination without “cause.” The severance benefits provided under these agreements are described below under “Compensation Tables—Potential Payments Upon Termination or Change-in-Control.”

 

Compensation Tables

 

Summary Compensation Table for 2006

 

The following table shows summary compensation information for the named executives for 2006.

 

 

 

 

 

          Certain Components of “All Other Compensation” for 2006

 

						Universal				Universal				Excess				Excess								Payments in
		401(k)				Life				Life				Liability				Liability								Connection
		Plan				Insurance				Insurance				Insurance				Insurance				Charitable				with
		Matching				Coverage				Tax				Coverage				Tax				Award				Termination
Executive		Contributions				Premiums				Gross-up				Premiums				Gross-up				Programs				of Employment
Daniel Mudd		$	6,600			$	58,650			$	48,278			$	1,150			$	947			$	20,447				—
Robert Blakely			—				86,709				46,998				1,150				623				5,000				—
Robert Levin			6,600				31,715				25,326				1,150				918				5,000				—
Peter Niculescu			6,600				18,101				13,216				1,150				840				—				—
Beth Wilkinson			6,600				14,400				7,805				1,150				623				5,000				—
Michael Williams			6,600				23,304				18,610				1,150				918				5,000				—
Julie St. John			6,600				39,921				32,861				1,150				947				4,800				1,755,498

 

 

Grants of Plan-Based Awards in 2006

 

The following table shows grants of awards made under our Annual Incentive Plan and the 2003 Plan to the named executives during 2006.

 

 

 

 

 

Outstanding Equity Awards at 2006 Fiscal Year-End

 

The following table shows outstanding stock option awards, unvested restricted stock, restricted stock unit awards and performance share program awards held by the named executives as of December 31, 2006. The market value of option and stock awards shown in the table below is based on a per share price of $59.39, which was the closing market price of our common stock on December 29, 2006.