Financial Accounting Memorandum, Term Paper Example

To:

From:

Date: January 25, 2010

RE: Financial Accounting.

Fannie Mae is the short name for Federal National Mortgage Association founded in the year 1938 for the duration of the great depression; this is a government sponsored enterprise (GSE) which was chartered by the congress in the same year it was founded. The main function of this enterprise is to securitize and purchase mortgages so as to ascertain that the funds derived from these activities are consistently accessible to bodies that lend money to home buyers.

The corporation funds mainly its investment through proceeds, this are returns from the issuance from debt securities in the international and domestic capital markets. The main customers of this company are the lenders of the primary mortgages where loans for such ventures are originated and the lenders are lend out the finances to cover mortgage, this includes not only individuals but; savings and loan associations, commercial banks, credit unions, mortgage banking firms, insurance companies, state and local housing finance agencies and saving banks.

The year 1999 during the Clinton administration the Fannie Mae came under pressure, and the pressure was them to expand mortgages loans to moderate and low income lenders by escalating their loan portfolio ratio in distressed inner city areas selected in the CRA of 1977. This layered risk that made investors and borrowers to shy away continued up to the year 2005 during the overhaul by then president Bush administration. The company had tumbled up to 90% from their share, from their two years prior level this in the year 2008 and $5 trillion on debt.

Nassim Taleb wrote in his book the black swan “when one looks at the risk the government sponsored institution Fannie Mae in, it good to say that its like sitting on a barrel of dynamite, while is venerable to a slightest hiccup, though not to worry the large staff of scientist working round the clock will eventually deem these events”.

At present the company stands at total revenue of US$ $51.7 billion, operating income of US$ ?5.1 billion, with a total net income of US$ ?2.0 billion, with total assets accumulating up to US$ 882.5 billion and a total equity equivalent to  US$ 44.0 billion for the year 2007-2009. The company has gone through a rough time though its recovery is been felt by the shareholders and investors.