CHAPTER 11Fannie Mae Tightens Its Disciplines

THE CONSTANT OUTSIDE SCRUTINY TO WHICH FANNIE MAE WAS subject made us extremely sensitive to any potential vulnerabilities we might have with respect to our business operations, mission-related activities, or risk management. In this environment, three issues that arose during Raines’s chairmanship led us to reexamine our risk profile and risk management strategies in 2003. These were the adoption of a new accounting standard for derivatives, a negative market reaction to a portfolio imbalance we developed in the fall of 2002, and unexpected losses from our holdings of AAA-rated private-label manufactured housing securities.

An Accounting Rule Adds Confusion

Normally, accounting standards do not affect ...

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