In a conference call last week discussing Fannie Mae's role in the mortgage market, Fannie Mae President and Chief Executive Officer Daniel Mudd outlined the steps the company was taking to amend its recent troubles. "We have made pretty good progress on remediation," he said during the call. "But I want to be clear...that we do have a lot more to do." Mudd referenced this same idea multiple times throughout the discussion, implying that it is indeed one of the main positions for the company going forward.

Mudd began the conference call by stating that Fannie is in the process of taking the appropriate steps to get the company "where it needs to be." This includes improvements in its capital, restatement, and organization. Fannie Mae's appears to be in a positive position currently as it has over $40 billion in capital, a ratio of capital and assets that is the highest the company has ever seen.

As for the restatement, "we've made steady progress having completed our review of all of all relevant accounting policies, including, by the way, review with outside advisors, and in some cases, consultation with the Securities and Exchange Commission," said Mudd. "We've completed restatement of significant portions of the balance sheet, based on the new procedures and systems we have in place, so, as a result of being through that iteration we know that we can get this done. That said, there is a lot of hard work to do, and that's hard work on a very tight time lines, all in the context of an overriding mandate that we get it done right the first and the only time," he continued.

The company has also reorganized much of its internal structure. Among the numerous changes, internal audit reports to the board now have twice as many officers as in the past. Accounting policy, accountings application, and budgeting are now separate, with each group headed by new senior leadership. The company has also completed hiring of a number of top management professionals, one of whom is Enrico Dallavecchia, formerly at JPMorgan Chase, as executive vice president and chief risk officer.

Mudd also touched on the capital markets side of the company, and stated that portfolio duration has and will remain well within the plus or minus six month band, and that it currently stands at zero. On another positive note, fixed income securities remain strong.

Overall, Mudd emphasized that two of Fannie Mae's main goals are still liquidity and affordability. Despite its recent problems, it is still making progress and working to create new affordable mortgages that will be more broadly available. Also, the company realizes that the minority population is a huge untapped market, and that it will be focusing on that section of the population for growth in the future.

"This (housing) market is going to be more, not less, important in the future. Over the next 10 years, for example, the expected growth...should create 15 million new households, require 20 million more homes to be built, and thus require another $30 trillion in mortgage capital," said Mudd towards the end of the call, reinforcing the idea that the housing market, and Fannie Mae, is still worth peoples' attention.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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