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The following is an excerpt from a 10-K SEC Filing, filed by FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE on 2/26/2009.
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FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE - 10-K - 20090226 - COMPENSATION
William B. Senhauser , 46, has been Senior Vice President and Chief Compliance Officer since December 2005. Mr. Senhauser previously served as Vice President for Regulatory Agreements and Restatement from October 2004 to December 2005 and Vice President for Operating Initiatives from January 2003 to September 2004. Mr. Senhauser joined Fannie Mae in 2000 as Vice President for Fair Lending.
 
Michael A. Shaw , 61, has been Executive Vice President and Enterprise Risk Officer since November 2008 and served as Executive Vice President and Chief Risk Officer from August 2008 to November 2008. Mr. Shaw previously served as Senior Vice President—Credit Risk Oversight beginning in April 2006, when he joined Fannie Mae. Prior to that time, Mr. Shaw was employed at JPMorgan Chase & Co., where he served as Senior Credit Executive from 2004 to 2006, as Senior Risk Executive, Policy, Reporting, Analytics and Finance during 2004 and as Senior Credit Executive—Consumer, Chase Financial Services from 2003 to 2004.
 
Michael J. Williams , 51, has been Executive Vice President and Chief Operating Officer since November 2005. Mr. Williams previously served as Fannie Mae’s Executive Vice President for Regulatory Agreements and Restatement from February to November 2005. Mr. Williams also served as President—Fannie Mae eBusiness from July 2000 to February 2005 and as Senior Vice President—e-commerce from July 1999 to July 2000. Prior to this, Mr. Williams served in various roles in the Single-Family and Corporate Information Systems divisions of Fannie Mae. Mr. Williams joined Fannie Mae in 1991.
 
Under our bylaws, each executive officer holds office until his or her successor is chosen and qualified or until he or she resigns, retires or is removed from office.
 
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 2008 or with respect to 2008 and on written representations from our directors and officers, we believe that all of our directors and officers timely filed all required reports and reported all transactions reportable during 2008.
 
Item 11.   Executive Compensation
 
COMPENSATION DISCUSSION AND ANALYSIS
 
Our Named Executives for 2008
 
In accordance with SEC rules, this section discusses compensation decisions relating to our Chief Executive Officer and Chief Financial Officer, each person who served in one of those roles during 2008, our next three most highly compensated executive officers during 2008 who continued to serve as executive officers at the end of 2008, and two former officers who were among our most highly compensated executive officers during 2008. We refer to these individuals as our named executives. Because our 2008 executive compensation arrangements for our named executives vary depending on whether the executives joined Fannie Mae in 2008, served as executive officers throughout 2008, or ceased serving as executive officers during 2008, we identify our named executives below according to these three groups.
 
Our named executives for 2008 are:
 
Executives who joined Fannie Mae in 2008:
 
  •  Herbert M. Allison, Jr., President and Chief Executive Officer
 
  •  David M. Johnson, Executive Vice President and Chief Financial Officer
 
Executives who joined Fannie Mae prior to 2008 and who continue to serve as executive officers:
 
  •  Kenneth J. Bacon, Executive Vice President—Housing and Community Development
 
  •  David C. Hisey, Executive Vice President and Deputy Chief Financial Officer (served as Chief Financial Officer from August 2008 to November 2008 and as Controller from January 2005 to August 2008)
 
  •  Thomas A. Lund, Executive Vice President—Single-Family Mortgage Business
 
  •  Michael J. Williams, Executive Vice President and Chief Operating Officer


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Executives who ceased serving as executive officers in 2008:
 
  •  Daniel H. Mudd, former President and Chief Executive Officer
 
  •  Stephen M. Swad, former Executive Vice President and Chief Financial Officer
 
  •  Enrico Dallavecchia, former Executive Vice President and Chief Risk Officer
 
  •  Robert J. Levin, former Executive Vice President and Chief Business Officer
 
Impact of the Conservatorship on Executive Compensation
 
As discussed above under “Part I—Item 1—Business—Conservatorship, Treasury Agreements, Our Charter and Regulation of Our Activities,” the Director of FHFA appointed FHFA as conservator of Fannie Mae on September 6, 2008. This event and the conditions that led to it had a significant impact on our executives, their compensation and the process by which executive compensation for 2008 was determined.
 
2008 Executive Compensation Decisions Have Been Made or Approved by Our Conservator
 
Upon its appointment as our conservator in September 2008, FHFA immediately succeeded to all rights, titles, powers and privileges of Fannie Mae, and of any shareholder, officer or director of Fannie Mae with respect to Fannie Mae and its assets. As a result, our then-existing Board of Directors no longer had the power or duty to manage, direct or oversee the business and affairs of Fannie Mae, and the Board and its committees, including the Compensation Committee, ceased functioning from the date of conservatorship until late December 2008. Of the compensation determinations for 2008 discussed below, only the salary levels for our executive officers who served prior to conservatorship were determined by the Compensation Committee of the prior Board. The rest of the executive compensation decisions discussed below were determined by or approved by FHFA, in consultation with the Secretary of the Treasury. In particular, the determinations that incentive compensation would not be paid for 2008 and decisions regarding the structure of the 2008 Retention Program were made by FHFA. The amount of the retention awards and the amount of Mr. Johnson’s salary were approved by FHFA after considering management’s recommendations. Mr. Allison, our Chief Executive Officer, reviewed management’s recommendations before they were provided to FHFA. FHFA has provided the information below regarding the factors it considered in reaching these executive compensation determinations.
 
After September 2008, FHFA reconstituted our Board of Directors, directed us regarding the function and authorities of the Board, and appointed six new and three returning directors to our Board to serve in addition to our Board Chairman, who was appointed by FHFA in September 2008. The reconstituted Compensation Committee first met in late January 2009.
 
Conservator’s determination relating to 2008 Incentive Compensation and Establishment of 2008 Retention Program
 
Conservator’s determination relating to 2008 Annual Incentive Plan Bonus Payments and Stock-Based Long-Term Incentive Awards.   Our compensation of executive officers for 2008 was originally structured to include three principal cash and stock components: (1) salary, (2) the opportunity to receive cash bonuses under our Annual Incentive Plan, which measured both corporate and individual performance during the year against goals established by the Board of Directors at the beginning of the year and (3) the opportunity to receive long-term incentive awards, generally in the form of restricted stock, which were to be awarded based on the achievement of corporate goals.
 
On September 15, 2008, given our overall performance relative to the goals established by the Board in early 2008, the conservator determined that no executive officer would be entitled to receive a cash bonus under our Annual Incentive Plan. In addition, the conservator determined that long-term incentive awards would not be made to any executive officer for 2008 performance.
 
Conservator’s Establishment of 2008 Retention Program.   On September 15, 2008, the conservator established a broad-based employee retention program, which we refer to as the 2008 Retention Program, under which some of our named executives received cash retention awards. Thirty-three percent of each of these awards is “performance-based” and may become payable, in whole or in part, in February 2010 if the named executive continues to be employed by us at that time or is involuntarily terminated for reasons other


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than unsatisfactory performance. The amount of the payment will be determined based on our performance against goals that we expect will be established in the next few months by the Board and that must be approved by the conservator. The balance of each cash retention award is “service-based,” payable in three installments as follows: 20% was paid in December 2008, 20% will become payable in April 2009 and 27% will become payable in November 2009. The April 2009 and November 2009 payments will become payable only if the named executive remains employed by us on the payment date or is involuntarily terminated for reasons other than unsatisfactory performance.
 
Our 2009 Compensation Program
 
In September 2008, the conservator initially determined that our executive compensation for 2009 would consist of: (1) salary, (2) the opportunity to receive cash bonuses under the Annual Incentive Plan and (3) the opportunity to receive long-term incentive deferred cash awards. However, standards regarding executive compensation levels and components, particularly in the financial services industry, are changing significantly. For example, the American Recovery and Reinvestment Act of 2009, signed into law on February 17, 2009, provides limitations on executive compensation for entities receiving financial assistance under the TARP. We have not received assistance under TARP. Additionally, on February 4, 2009, Treasury announced new restrictions on executive compensation that will apply prospectively to certain financial institutions receiving government assistance. We do not know how these new standards or other market developments might affect our executive compensation program for 2009.
 
The Compensation Committee and our conservator intend to develop an executive compensation program for 2009 that reflects evolving standards regarding executive compensation and enables us to recruit and retain well-qualified executives. The Compensation Committee expects to meet with our senior risk officer to discuss and review the relationship between our risk management policies and practices and the incentive compensation arrangements of our senior executive officers, to ensure that the senior executive officer incentive compensation arrangements do not encourage the senior executive officers to take unnecessary and excessive risks. The Compensation Committee and our conservator have not yet made any decisions regarding our 2009 compensation program.
 
What were the conservator’s goals in establishing the 2008 Retention Program?
 
In establishing the 2008 Retention Program, which was established prior to Treasury’s recent announcement of compensation restrictions at certain U.S. financial institutions, the conservator sought to provide meaningful financial incentives for employees to remain at Fannie Mae. Retaining critical employees was essential to ensure our viability through 2010, which would allow Congress, the administration and other parties involved time to determine what the form and function of the company will be in future years.
 
How does the 2008 Retention Program address the conservator’s goals?
 
The design of the 2008 Retention Program. By structuring awards to provide for service-based cash payouts over a two-year period, the 2008 Retention Program was designed to provide incentives for employees to remain at Fannie Mae. Structuring executive retention awards so that payment of a portion is subject to corporate performance supports the goal of ensuring individual compensation is partly based on corporate performance.
 
As discussed below in “How did FHFA or Fannie Mae determine the amount of each element of 2008 direct compensation?—Retention Award Determinations,” the size of the retention awards was based on the criticality to the company of the position that each executive holds, the expertise of the individual and future potential of the individual. The overall pool for retention awards was smaller than the potential 2008 pool for awards under our Annual Incentive Plan; however, a specific individual’s award could be significantly less than or greater than the individual’s target Annual Incentive Plan bonus. The awards were structured this way in recognition of Fannie Mae’s unsatisfactory performance in 2008, coupled with our urgent need to retain people in the most critical positions.


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What compensation arrangements do we have with Mr. Allison, our Chief Executive Officer?
 
At his request, Mr. Allison, who became our Chief Executive Officer on September 7, 2008, did not receive any salary or bonus for his 2008 service to Fannie Mae. In 2008, Mr. Allison reimbursed us our incremental cost for his use of a company car and driver for commuting and certain other personal travel and for meals from our corporate dining service. In light of the fact that Mr. Allison did not receive a salary for 2008, FHFA authorized reimbursement of certain expenses Mr. Allison incurred. Pursuant to FHFA’s approval, we paid (1) travel and relocation costs Mr. Allison incurred during the first five weeks he worked at Fannie Mae, including his use of a company car and driver for commuting during that time, and (2) an amount to cover the withholding tax that resulted from our payment of these costs and Mr. Allison’s personal use of a company car and driver. At this time, 2009 compensation arrangements for Mr. Allison have not been determined.
 
What were the primary elements of compensation for our other named executives for 2008?
 
Compensation provided to our named executives for 2008, other than Mr. Allison, consisted primarily of salaries, the service-based portion of 2008 retention awards for our continuing executives, employee benefits, perquisites and, for certain of our departing named executives, severance benefits. Salaries paid to our named executives were determined at the beginning of 2008 or in connection with a new hire. Retention awards and severance benefits paid to our named executives were determined after we entered conservatorship in September 2008. In addition, in February 2008, one named executive, Mr. Hisey, earned the payment of a cash bonus he was initially awarded in 2007 upon the timely filing in February 2008 of our 2007 Annual Report on Form 10-K with the SEC.
 
Salaries and the Service-Based Portion of Retention Awards.   Salary is the base component of our compensation program and is intended to reflect each named executive’s level of responsibility and individual performance over time. The service-based portion of retention awards is described above in “Impact of the Conservatorship on Executive Compensation—Conservator’s determination relating to 2008 Incentive Compensation and Establishment of 2008 Retention Program.”
 
Employee Benefits.   Our employee benefits are a fundamental part of our compensation program and are an important tool in recruiting and retaining executives.
 
  •  Retirement Benefits.   We redesigned our retirement benefits program in late 2007. Changes made to the program included freezing participation in our tax-qualified defined benefit retirement plan, our Executive Pension Plan and our supplemental pension plans. As a result of these changes, our named executives are eligible to participate in one of two retirement benefit programs depending on their date of hire. More detail on our pension plans and retirement benefits is provided below under “Compensation Tables—Pension Benefits” and “Compensation Tables—Nonqualified Deferred Compensation.”
 
  •  Named executives other than Mr. Hisey who were hired prior to January 1, 2008 participate in our tax-qualified defined benefit pension plan, Executive Pension Plan and supplemental pension plans. Mr. Hisey, who was promoted to executive vice president after participation in the Executive Pension Plan was frozen in November 2007, participates in our supplemental pension plans and our tax-qualified defined benefit retirement plan, but not our Executive Pension Plan.
 
  •  Named executives who were hired on or after January 1, 2008 participate in our Supplemental Retirement Savings Plan, an unfunded, non-tax-qualified defined contribution plan. Because these executives are not eligible for our tax-qualified defined benefit retirement plan, these executives also receive an enhanced matching contribution under our 401(k) plan.
 
  •  Other Employee Benefits and Plans.   In general, named executives are eligible for employee benefits available to our employee population as a whole, including our medical insurance plans, 401(k) plan and matching gifts program. Named executives also are eligible to participate in programs we make available only to management employees at varying levels. These programs include our supplemental long-term disability insurance plan, our executive life insurance plan and, until recently, the opportunity to elect to defer compensation into our deferred compensation plan.
 
Perquisites.   In 2008, we provided our named executives limited perquisites not available to our general employee population, to the extent we believed they were appropriate for retaining and attracting named


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executives or based on the business needs of the named executives in the performance of their job responsibilities. In 2008, we agreed to provide Mr. Johnson relocation benefits, including moving, temporary living, and home selling and buying assistance.
 
Severance Benefits.   None of our named executives who currently serves as an executive officer has entered into an agreement with us entitling him to severance benefits. Information on benefits an executive might receive under our compensation programs in the event the executive’s employment is terminated is provided below in “Compensation Tables—Potential Payments upon Termination or Change-in-Control.” Compensation arrangements for Mr. Mudd are discussed in more detail below in “What compensation arrangements do we have with Mr. Mudd, our Former Chief Executive Officer?” and information on severance benefits for our other named executives who no longer serve as executive officers is provided below in “How did FHFA or Fannie Mae determine the amount of each element of 2008 direct compensation?—Separation Benefit Determinations.”
 
How did FHFA or Fannie Mae determine the amount of each element of 2008 direct compensation?
 
We describe below how each element of our named executives’ 2008 direct compensation was determined.
 
Salary Determinations.
 
Mr. Allison did not receive a salary in 2008. As discussed above, 2009 compensation arrangements for Mr. Allison have not been determined.
 
FHFA approved the salary for Mr. Johnson, who became our Chief Financial Officer in November 2008, in connection with his hire, along with potential amounts for the size of his 2009 cash bonus target and his 2009 long-term incentive award grant. Mr. Johnson’s annual salary is $625,000. In establishing his compensation, FHFA considered the recommendations of management, the substantial reduction Mr. Johnson’s target compensation represented in comparison to compensation for Mr. Swad, our former Chief Financial Officer, and pay by comparable institutions for executives in comparable positions, as reported earlier in 2008 to FHFA by FHFA’s compensation consultant, HayGroup. In recommending compensation for Mr. Johnson, management relied on guidance and data from its outside executive compensation consultant, Johnson Associates, Inc. (which is not related to Mr. Johnson), regarding changing trends in chief financial officer compensation. The recommended compensation level was intended to target the market median of total direct compensation paid at companies in a comparator group of diversified financial services companies that we compete with for executive talent. For this purpose, we looked to the same comparator group that we used for 2007 compensation decisions. The members of this group are listed in the proxy statement on Schedule 14A we filed with the SEC on April 4, 2008. The compensation recommendation was also designed to balance our goal of seeking to recruit Mr. Johnson with the need to limit compensation to an appropriate level given our current circumstances.
 
In accordance with our compensation philosophy, which considered, as a guideline, the market median of total direct compensation paid at companies in our comparator group, in early 2008 our Board increased Mr. Bacon’s salary to $530,400 and Mr. Lund’s salary to $543,920. For similar reasons, and taking into account individual performance and role criticality, in early 2008 our Board increased Mr. Hisey’s salary to $385,017. No other named executive received a salary increase for 2008.
 
No decisions have been made yet regarding 2009 salaries for our continuing named executives, and they are currently being paid at a rate equal to their 2008 salary levels.
 
Retention Award Determinations.
 
Retention awards were granted to each of our named executives who served as an officer through the entire year of 2008, in the amounts indicated in the Direct Compensation Paid or Granted to our Continuing Named Executives in 2008 table below and in footnote 4 to that table.
 
When it established the 2008 Retention Program, FHFA directed that the pool from which retention awards could be paid to our employees would be funded at an amount no greater than 75% of the aggregate 2008 annual bonus target amounts that previously had been established for employees. FHFA established this amount based on advice from its compensation consultant, HayGroup, regarding the appropriate structure and


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size of a retention program, based on its experience and familiarity with programs at other firms in related circumstances. In reaching this amount FHFA sought to balance the goal of retaining critical executives with the need to limit compensation to an appropriate level given our current circumstances.
 
The size of individual retention awards was based on the criticality to the company of the position that each officer holds, the expertise of the individual and future potential of the individual. Individual awards for named executives under the 2008 Retention Program were permitted to range from 0% to 150% of the target Annual Incentive Plan bonus for the executive’s position, based on the criticality, expertise and future potential factors mentioned above. Based on these factors, the retention awards granted to Mr. Hisey, Mr. Bacon, Mr. Lund and Mr. Williams represented approximately 81%, 102%, 99% and 87%, respectively, of target Annual Incentive Plan bonuses for their positions.
 
The size of named executives’ individual retention awards was approved by FHFA in October 2008. In approving these awards, FHFA considered the recommendations of management, which followed guidelines provided by FHFA regarding appropriate ranges for awards as a percentage of target Annual Incentive Plan bonuses. FHFA also considered the consistency of the awards with the overall retention program FHFA had established in consultation with HayGroup.
 
Direct Compensation Paid or Granted to our Continuing Named Executives in 2008.
 
The following table illustrates the direct compensation paid or granted to our continuing named executives in 2008. No amounts are shown in this table for stock awards because, as discussed above and unlike in previous years, our named executives received no stock-based awards for 2008 performance. This table is not intended to replace the summary compensation table, required under applicable SEC rules, which is included below under “Compensation Tables—Summary Compensation Table.”
 
Direct Compensation Paid or Granted to our Continuing Named Executives in 2008 (1)
 
                                 
            Portion of Cash
  Portion of Cash
            Retention
  Retention
    Base Salary as of
      Award Granted in
  Award Granted in
Continuing
  December 31,
      2008 and Paid in
  2008 and Payable
Named Executive
  2008 (2)   Cash Bonus (3)   2008 (4)   in 2009 (4)
 
Herbert Allison
                      —   
David Johnson
  $ 625,000                    
Kenneth Bacon
    530,400           $ 200,000     $ 470,000  
David Hisey
    385,017     $ 160,000       220,000       517,000  
Thomas Lund
    543,920             200,000       470,000  
Michael Williams
    676,000             260,000       611,000  
 
 
(1) This table includes only some of the components of 2008 compensation that are reported in the Summary Compensation Table, below. Specifically, the following components of compensation reported in that table are not included in this table: amounts we recognized for financial statement reporting purposes during 2008 for the fair value of stock and option awards held by our named executives, changes in our executives’ pension values, the value of perquisites, company contributions to 401(k) plans, life insurance premiums, tax gross-ups, and charitable award program amounts. More information on these amounts appears in the summary compensation table below and its accompanying footnotes.
 
(2) This amount represents annual base salary as of December 31, 2008, not amounts actually received by the named executives. Actual salary amounts received during 2008 are presented in our summary compensation table below under “Compensation Tables—Summary Compensation Table.”
 
(3) No named executive received a cash bonus for 2008 under our Annual Incentive Plan. In 2008, Mr. Hisey received a cash bonus he was awarded in 2007 payable upon our timely filing in February 2008 of our 2007 Annual Report on Form 10-K with the SEC.
 
(4) As discussed above in “Impact of the Conservatorship on Executive Compensation—Conservator’s determination relating to 2008 Incentive Compensation and Establishment of 2008 Retention Program,” 20% of the retention awards made to our named executives under our 2008 Retention Program was paid to the executives in 2008. This portion of the retention awards is shown above in the “Portion of Cash Retention Award Granted in 2008 and Paid in 2008” column. Forty-seven percent of the awards, which is shown above in the “Portion of Cash Retention Award Granted in 2008 and Payable in 2009” column, is payable as follows: 20% in April 2009 and 27% in November 2009. The final 33% of each award, or $330,000 for Mr. Bacon, $363,000 for Mr. Hisey, $330,000 for Mr. Lund, and $429,000 for Mr. Williams, is “performance-based” and is payable, in whole or in part, in February 2010. The amount of the


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February 2010 payment will be determined based on our performance against goals. Each future payment of these awards will become payable only if the named executive remains employed by us on the payment date or is involuntarily terminated for reasons other than unsatisfactory performance.
 
Messrs. Allison and Johnson joined Fannie Mae in 2008 and therefore did not receive retention awards.
 
Separation Benefit Determinations.
 
In February 2009, we entered into a separation agreement with each of Mr. Swad and Mr. Dallavecchia pursuant to which each will receive one year of his base salary at the rate in effect on August 27, 2008, minus any amounts previously received for periods on or after August 27, 2008, as well as the ability to participate in our health insurance plans for a one-year period beginning August 27, 2008 at employee rates and to receive up to $18,000 in outplacement services. The terms of the separation agreements were determined by FHFA after consultation with management. In determining the separation terms, FHFA considered the employee-specific recommendations of management and the recommendations of FHFA’s compensation consultant, HayGroup, regarding current severance practices of other large financial firms and adjustments appropriate to Fannie Mae’s circumstances.
 
In August 2008, Mr. Levin stepped down as our Chief Business Officer following the announcement of his intention to retire in early 2009. Mr. Levin has remained employed by Fannie Mae in a non-executive capacity and expects to retire February 28, 2009. Mr. Levin will not receive any separation or severance payments as a result of his planned retirement.
 
What compensation arrangements do we have with Mr. Mudd, our former Chief Executive Officer?
 
During 2008, Mr. Mudd, who ceased serving as our Chief Executive Officer in September 2008, received compensation in the form of salary, employee benefits and perquisites referred to above. Mr. Mudd was also entitled to severance benefits under his employment agreement with us dated November 15, 2005. On September 14, 2008, the Director of FHFA notified us that severance and other payments contemplated in Mr. Mudd’s employment contract were golden parachute payments which, as our regulator, FHFA has the authority to prohibit or limit under the Housing and Economic Recovery Act, and that these payments should not be paid. Specifically, FHFA directed us not to pay Mr. Mudd any salary beyond the date on which his employment terminated and not to pay him any annual bonus for 2008. Under this authority, FHFA also determined and directed that no stock grants previously made to Mr. Mudd should vest by reason of his termination. Finally, FHFA advised and directed that, if Mr. Mudd elected to remain with Fannie Mae for a transition period of up to 90 days, we would pay Mr. Mudd his current salary during that transition period. Mr. Mudd remained with us for a 90-day transition period and we paid his salary during that time.
 
Under the terms of Mr. Mudd’s employment agreement, he will receive continued medical and dental coverage for himself and his spouse and eligible dependents, without premium payments by Mr. Mudd, for two years or until, if earlier, the date he obtains comparable coverage through another employer. FHFA has approved our provision of this continuing coverage. Mr. Mudd’s agreement also provides that we pay his legal expenses incurred in connection with negotiation, amendment or discussion of the agreement, or in connection with a contest or arbitration regarding the agreement if Mr. Mudd prevails in such contest or arbitration. Mr. Mudd has requested $34,906 in legal expenses incurred as a result of his termination of employment.
 
During 2008, Mr. Mudd also participated, in his capacity as a director, in our Director’s Charitable Award Program along with other members of our pre-conservatorship Board. The program benefits will not be provided for service after we entered conservatorship, and no determination has been made yet regarding whether benefits under the program for prior service will be provided, amended or terminated.
 
What role will our Board’s Compensation Committee have in setting compensation in 2009?
 
As described above in “Impact of the Conservatorship on Executive Compensation—2008 Executive Compensation Decisions Have Been Made or Approved by Our Conservator,” FHFA has reconstituted our Board and, in late December 2008, the Board appointed a Compensation Committee. Although the


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Compensation Committee will take the lead role in considering and recommending executive compensation, the following circumstances will impact the committee’s authority:
 
  •  Our directors serve on behalf of FHFA and exercise their authority as directed by FHFA. More information about the role of our directors is described above in “Item 10—Directors, Executive Officers and Corporate Governance—Corporate Governance—Conservatorship and Delegation of Authority to Board of Directors.”
 
  •  FHFA, as our conservator, has directed that our Board consult with and obtain FHFA’s consent before taking any action involving compensation or termination benefits of any officer at the executive vice president level and above and including, regardless of title, executives who hold positions with the functions of the chief operating officer, chief financial officer, general counsel, chief business officer, chief investment officer, treasurer, chief compliance officer, chief risk officer and chief/general/internal auditor.
 
  •  Under the terms of the senior preferred stock purchase agreement, we may not enter into any new compensation arrangements or increase amounts or benefits payable under existing compensation arrangements of any named executive without the consent of the Director of FHFA, in consultation with the Secretary of the Treasury.
 
  •  Under the terms of the senior preferred stock purchase agreement, we may not sell or issue any equity securities without the prior written consent of Treasury, other than as required by the terms of any binding agreement in effect on the date of the senior preferred stock purchase agreement. This restricts our ability to offer equity-based compensation.
 
  •  While we are in conservatorship, FHFA, as our conservator, retains the authority not only to approve both the terms and amount of any compensation to any of our executive officers, but also to modify any such arrangements.
 
  •  FHFA, as our regulator, must approve any termination benefits we offer to our named executives and certain other officers identified by FHFA.
 
  •  Under the Housing and Economic Recovery Act and related regulations issued by FHFA in September 2008 and finalized in January 2009, the Director of FHFA has the authority to prohibit or limit us from making any “golden parachute payment” to specified categories of persons, including its named executive officers, by regulation or order using the factors in the regulations. A “golden parachute payment” is defined to include any payment that: (1) either is contingent on, or by its terms is payable on or after, the termination of a person’s primary employment or affiliation with us and (2) is received on or after the date on which a conservator was appointed for us. Under the regulations, the term “golden parachute payment” does not include certain payments including: (1) a payment made pursuant to a tax-qualified pension or retirement plan, (2) a payment pursuant to a bona fide deferred compensation plan or arrangement that the Director of FHFA determines, by regulation or order, to be permissible or (3) a payment made by reason of death or by reason of termination caused by disability.
 
  •  Under the Housing and Economic Recovery Act, FHFA has the power to approve, disapprove or modify executive compensation until December 31, 2009 as our regulator, in addition to its authority as conservator.
 
What are our stock ownership and hedging policies?
 
In January 2009, our Board eliminated our stock ownership requirements because of the difficulty of meeting the requirements at current market prices and because we had ceased paying our executives stock-based compensation.
 
All employees, including our named executives, 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.


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What is our compensation recoupment policy?
 
In May 2006 we agreed with OFHEO that any future 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 directed us to escrow such funds. In addition, we agreed to include appropriate provisions in future employment agreements to address terminations for cause and recovery of compensation paid to executives where there are proven allegations of misconduct. Any future employment agreements with named executives will contain these provisions.
 
Did Section 162(m) of the Internal Revenue Code limit the tax deductibility of compensation paid to Fannie Mae’s named executives during 2008?
 
Subject to certain exceptions, under Section 162(m) of the Internal Revenue Code, income tax deductions of publicly-held corporations may be limited to the extent total compensation for certain named executives exceeds $1 million in any one year. We became a “publicly-held” corporation within the meaning of Section 162(m) during 2008 as a result of the passage of the Housing and Economic Recovery Act in July 2008. We do not expect Section 162(m) to limit the deduction for compensation paid to any of our named executives during 2008.
 
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
 
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in this Form 10-K with management and, based on the review and discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Form 10-K.
 
Compensation Committee:
 
Brenda J. Gaines, Chair
Dennis R. Beresford
David H. Sidwell
Diana L. Taylor
 
COMPENSATION TABLES
 
Summary Compensation Table for 2008, 2007 and 2006
 
The following table shows summary compensation information for 2008, 2007 and 2006 for the named executives. The amounts shown in the “Stock Awards” and “Option Awards” columns do not represent the value of stock or option awards received by the named executives for performance during the compensation year indicated. Instead, as required by SEC rules, we report below the dollar amounts we recognized for financial statement reporting purposes during each year indicated for the fair value of stock and option awards we granted during that year or in prior years. These fair values were calculated based on the prices at which


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our stock was trading when the awards were granted, which were significantly higher than $0.76, the closing price of our common stock on December 31, 2008. (1)
 
                                                                         
                            Change in
       
                            Pension
       
                            Value and
       
                        Non-Equity
  Nonqualified
       
                        Incentive
  Deferred
       
                Stock
  Option
  Plan
  Compensation
  All Other
   
Name and
      Salary
  Bonus
  Awards
  Awards
  Compensation
  Earnings
  Compensation
  Total
Principal Position
  Year   ($)   ($) (2)   ($) (1)(3)   ($) (4)   ($) (5)   ($) (6)   ($) (10)   ($) (1)
 
Herbert Allison (7)
    2008                                           58,260       58,260  
President and Chief Executive Officer
                                                                       
David Johnson (8)
    2008       48,077                                     962       49,039  
Executive Vice President and Chief Financial Officer
                                                                       
Kenneth Bacon
    2008       527,262       670,000       1,383,400       9,099             271,981       58,800       2,920,542  
Executive Vice President—Housing and Community Development
                                                                       
David Hisey (8)
    2008       382,904       737,000       856,753       45,851       160,000       62,450       43,209       2,288,167  
Executive Vice President and Deputy Chief Financial Officer and Former Chief Financial Officer
                                                                       
Thomas Lund
    2008       540,702       670,000       1,481,530       7,350             212,398       35,412       2,947,392  
Executive Vice President—Single-Family Mortgage Business
                                                                       
Michael Williams
    2008       676,000       871,000       3,387,047       24,336             724,874       43,034       5,726,291  
Executive Vice President
    2007       697,164             2,916,660       404,434       1,189,760       359,279       55,418       5,622,715  
and Chief Operating Officer
    2006       650,000             1,808,182       701,446       1,630,200       371,753       69,482       5,231,063  
Daniel Mudd (9)
    2008       951,923             1,549,444       34,835             1,807,016       211,454       4,554,672  
Former President and Chief
    2007       986,923             6,840,214       576,492       2,227,500       863,749       154,251       11,649,129  
Executive Officer
    2006       950,000             4,799,057       962,112       3,500,000       932,958       136,072       11,280,199  
Stephen Swad (9)
    2008       442,500             2,120,057                   171,643       683,441       3,417,641  
Former Executive Vice President and Chief Financial Officer
    2007       420,000       500,000       920,741             955,500       190,915       37,747       3,024,903  
Enrico Dallavecchia (9)
    2008       389,400             1,906,014                   194,961       612,272       3,102,647  
Former Executive Vice President and Chief Risk Officer
                                                                       
Robert Levin (9)
    2008       788,000             4,356,268       33,143             439,147       43,099       5,659,657  
Former Executive Vice President
    2007       785,077             3,884,783       546,654       1,477,500       203,174       70,545       6,967,733  
and Chief Business Officer
    2006       750,000             2,477,097       883,442       2,087,250       307,078       70,710       6,575,577  
 
 
(1) Because the amounts shown in the “Stock Awards” column are primarily based on the trading price of our common stock on the date of grant, the values shown are significantly higher than the value of these awards to our named executives, especially for 2008. The table below shows what the “Stock Awards” and “Total” compensation amounts for 2008 would be if (1) for the awards that remained unvested as of December 31, 2008, we recalculate these amounts using $0.76, the closing price of our common stock on December 31, 2008, and (2) for the awards that vested during 2008, we continue to calculate the amounts using the grant date fair value. If an executive had no unvested stock on December 31, 2008, the amount shown in the “Stock Awards, Adjusted” column is the same as the amount in the Summary Compensation Table above.
 
2008 stock award and total compensation amounts using $0.76 per share to value awards unvested at December 31, 2008
 
                                     
    Stock Awards,
          Stock Awards,
   
Executive
  Adjusted ($)   Total ($)  
Executive
  Adjusted ($)   Total ($)
 
Herbert Allison
          58,260     Michael Williams     337,214       2,676,458  
David Johnson
          49,039     Daniel Mudd     1,549,444       4,554,672  
Kenneth Bacon
    130,845       1,667,987     Stephen Swad     488,199       1,785,783  
David Hisey
    148,434       1,579,848     Enrico Dallavecchia     354,964       1,551,597  
Thomas Lund
    139,010       1,604,872     Robert Levin     454,169       1,757,558  
 
(2) For 2008, amounts shown under the “Bonus” column reflect the entire service-based portion of awards made under our 2008 Retention Program, including amounts that will not be paid until April 2009 and November 2009 and that will become payable only if the named executive remains employed by us on the payment date or is involuntarily terminated prior to the payment date for reasons other than unsatisfactory performance. Of the amounts included in the table, only 30% was actually paid to the named executives in 2008. More information about the retention awards


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made to our named executives is presented in “Compensation Discussion and Analysis—Impact of the Conservatorship on Executive Compensation—Conservator’s determination relating to 2008 Incentive Compensation and Establishment of 2008 Retention Program” and “—How did FHFA or Fannie Mae determine the amount of each element of 2008 direct compensation?—Retention Award Determinations.”
 
For 2007, the amount shown in the “Bonus” column for Mr. Swad represents a sign-on bonus he received in connection with his joining us in 2007.
 
(3) Amounts in the “Stock Awards” column represent the dollar amounts we recognized for financial statement reporting purposes in the year for the fair value of restricted stock, restricted stock units and performance shares granted during that year and in prior years in accordance with SFAS 123R. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. The amount shown for Mr. Mudd for 2008 is less than it would have otherwise been as a result of his forfeiture of 485,517 shares of restricted stock upon his departure from Fannie Mae in December 2008. The amount shown also reflects $801,762 in costs we recognized in accordance with SFAS 123R for dividends we paid Mr. Mudd on those forfeited shares in 2008 and prior years.
 
In January 2009, we reversed costs we recognized in prior years as a result of Mr. Swad’s forfeiture of 156,168 shares and Mr. Dallavecchia’s forfeiture of 139,437 shares. This reversal is not reflected in the amounts shown because it occurred in 2009, but it would have reduced the amounts shown in the “Stock Awards” column for 2008 if those reversals had taken place in 2008. Payouts under a performance share program in 2007 were at 40% for the 2003-2005 performance cycle and 47.5% for the 2004-2006 performance cycle. Thus, in 2007 we reversed expenses for 2006 that we previously recorded in our financial statements based on our estimate that awards would be paid out at 50%. To the extent expenses were recorded prior to 2006, the amounts above do not reflect the reversal of these expenses.
 
The SFAS 123R grant date fair value of restricted stock and restricted stock units is calculated as the average of the high and low trading price of our common stock on the date of grant. Because performance shares do not participate in dividends during the three-year performance cycle and include a cap on the market value to be paid equal to three times the grant date market value, the SFAS 123R grant date fair value of performance shares is calculated as the market value on date of grant, less the present value of expected dividends over the three-year performance period discounted at the risk-free rate, less the value of the three-times cap based on a Black-Scholes option pricing model. As described above, the amounts shown for stock awards in 2008 represent costs we recognized in 2008 for awards of restricted stock or restricted stock units granted in 2008 and in prior years. These costs, which are calculated based on the trading price of the common stock on the grant date times the number of shares granted, are recognized ratably over the period from the grant date through the vesting date.
 
(4) The amounts reported in the “Option Awards” column represent the dollar amounts we recognized for financial statement reporting purposes in each year in accordance with SFAS 123R for the fair value of stock option awards, which were granted in January 2005 and in prior years. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For the assumptions used in calculating the value of these awards, see “Notes to Consolidated Financial Statements—Note 1, Summary of Significant Accounting Policies—Stock-Based Compensation,” of our Annual Report on Form 10-K for the year ended December 31, 2005 for awards granted in 2005, 2004 and 2003, and see “Notes to Consolidated Financial Statements—Note 2, Summary of Significant Accounting Policies—Stock-Based Compensation,” of our Annual Report on Form 10-K for the year ended December 31, 2004 for awards granted in 2002. No named executive, other than Mr. Hisey, has received a stock option award since January 2004. Mr. Hisey received a stock option award in January 2005 in connection with his joining us and prior to his becoming an executive officer.
 
(5) The amount shown for Mr. Hisey for 2008 under the “Non-Equity Incentive Plan Compensation” column reflects a bonus Mr. Hisey earned in 2008 upon our timely filing with the SEC of our Annual Report on Form 10-K for the year ended December 31, 2007. The award was initially granted in 2007. No amounts are shown in the “Non-Equity Incentive Plan Compensation” for the performance-based portion of cash retention awards under our 2008 Retention Program because the amounts that will be paid for these awards will be based on our performance solely in periods after 2008.
 
Amounts shown for 2006 and 2007 in the “Non-Equity Incentive Plan Compensation” column represent amounts earned under our Annual Incentive Plan. Mr. Swad deferred $100,000 of his 2007 bonus under our Annual Incentive Plan to later years. Except for this deferred amount, amounts shown as earned under our Annual Incentive Plan were paid to our named executives in the fiscal year following the fiscal year in which they were earned.
 
(6) The reported amounts represent change in pension value. These amounts, which have been calculated using the same assumptions we use for financial reporting under GAAP, were significantly impacted by our use of a discount rate of 6.15% at December 31, 2008, compared to the discount rate of 6.4% we used at December 31, 2007. None of our named executives received above-market or preferential earnings on nonqualified deferred compensation.
 
(7) At his request, Mr. Allison, who became our President and Chief Executive Officer on September 7, 2008, did not receive any salary or bonus for his 2008 service to Fannie Mae.
 
(8) Mr. Johnson joined us in November 2008. Mr. Hisey began serving as an executive officer during 2008.
 
(9) Mr. Mudd ceased serving as an executive officer of Fannie Mae in September 2008. Mr. Mudd’s 2008 salary includes salary we paid him during a 90-day transition period from September 2008 until December 2008. Messrs. Swad,


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Dallavecchia and Levin ceased serving as executive officers of Fannie Mae in late August 2008. Mr. Levin’s 2008 salary includes amounts received for his service as a senior advisor subsequent to that time.
 
(10) The table below shows more information about the amounts reported for 2008 in the “All Other Compensation” column. In accordance with SEC rules, amounts shown under “All Other Compensation” do not include perquisites or personal benefits for a named executive that, in the aggregate, amount to less than $10,000. In addition to the perquisites discussed below, our executives may have used company drivers and vehicles for personal purposes, in which case they reimbursed us our incremental cost. Until early September 2008, our executives also used tickets for sporting events and concerts for personal use, for which they reimbursed us our incremental cost.
 
In 2008, Mr. Allison used a company car and driver for commuting and certain other personal travel, and used our corporate dining services, for both of which he reimbursed us our incremental cost. Because he reimbursed our incremental costs, no amounts are shown in the “Perquisites” column for these items. Mr. Allison’s perquisites consist of $27,976 in travel and relocation costs Mr. Allison incurred during the first five weeks he worked at Fannie Mae for hotel costs and incidentals such as meals, laundry/valet service, telephone calls and internet access, our incremental cost of $1,517 for Mr. Allison’s use of a company car and driver for commuting during that time, and water and soda. Amounts shown in the “Tax Gross-Ups” column below for Mr. Allison reflect amounts we paid to cover the withholding tax that resulted from our payment of Mr. Allison’s travel and relocation costs and Mr. Allison’s personal use of a company car and driver.
 
Mr. Mudd’s perquisites for 2008 consist of $34,906 he has requested under the terms of his employment agreement for legal advice in connection with the agreement, costs for executive dining services, and $590 in costs associated with his spouse accompanying him to our 2008 annual meeting in New Orleans such as meals, entertainment, gifts and our incremental cost of her air travel using our fractional aircraft interest, which we sold in early 2009. Mr. Mudd’s “Charitable Award Program” amounts reflect our incremental cost relating to his participation in our charitable award program for directors. We describe how we calculate this amount in footnote 6 to the 2008 Non-Employee Director Compensation Table that appears below in “Director Compensation.”
 
Amounts shown in the “Tax Gross-Ups” column below for Mr. Bacon reflect amounts we paid to cover the withholding taxes that resulted from providing Mr. Bacon a corporate parking benefit. The “Charitable Award Program” amounts for named executives other than Mr. Mudd reflect (1) gifts we made under our matching gifts program, under which gifts made by our employees and directors to Section 501(c)(3) charities are matched, up to an aggregate total of $10,000 in any calendar year; and (2) a matching contribution program under which an employee who contributes at certain levels to the Fannie Mae Political Action Committee may direct that an equal amount, up to $5,000, be donated by us to charities chosen by the employee in the employee’s name.
 
The amounts shown in the “Separation Benefits” column represent one year of the executive’s base salary at the rate in effect on August 27, 2008. More information on these benefits is provided in “Compensation Discussion and Analysis—How did FHFA or Fannie Mae determine the amount of each element of 2008 direct compensation?—Separation Benefit Determinations.”
 
Components of “All Other Compensation” for 2008
 
The table below shows more information about the amounts reported for 2008 in the “All Other Compensation” column of the Summary Compensation Table above. Please see footnote 10 to the Summary Compensation Table for additional information about these amounts.
 
                                                 
    Perquisites
      Universal Life
           
    and Other
  Company
  Insurance
      Charitable
   
    Personal
  Contributions to
  Coverage
  Tax
  Award
  Separation
Named Executive
  Benefits   401(k) Plan   Premiums   Gross-Ups   Programs   Benefits
 
Herbert Allison
    $29,576                   $28,684             —   
David Johnson
          $962                          
Kenneth Bacon
          6,900       $49,646       295       $1,959       —   
David Hisey
          11,500       29,750             1,959        
Thomas Lund
          6,900       26,553             1,959       —   
Michael Williams
          6,900       23,304             12,830        
Daniel Mudd
    36,143       6,900       58,650             109,761       —   
Stephen Swad
          5,000       21,482             6,959       $650,000  
Enrico Dallavecchia
          6,900       23,372             10,000       572,000  
Robert Levin
          6,900       31,715             4,484        


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Grants of Plan-Based Awards in 2008
 
The following table shows grants of awards made to the named executives during 2008 under our Annual Incentive Plan, our 2008 Retention Program to the extent payment of the award is based on satisfaction of performance goals, and our Stock Compensation Plan of 2003.
 
                                                     
                                All Other
       
                                Stock
       
                                Awards:
    Grant Date
 
                                Number of
    Fair Value of
 
              Estimated Future Payouts Under
    Shares of
    Stock and
 
        Grant Date
    Non-Equity Incentive Plan Awards (3)     Stock or
    Option
 
    Award
  for Equity
    Threshold
    Target
    Maximum
    Units
    Awards
 
Named Executive
  Type (1)   Awards (2)     ($)     ($)     ($)     (#) (4)     ($) (5)  
 
Herbert Allison
  AIP                                              
    Retention                                            
    RS                                           —   
David Johnson
  AIP                                              
    Retention                                            
    RS                                            
Kenneth Bacon
  AIP                     981,240                          
    Retention                           330,000                  
    RS     01/28/2008                               62,189       1,999,998  
David Hisey
  AIP                     577,526                          
    Retention                           363,000                  
    RS     01/28/2008                               29,244       940,487  
Thomas Lund
  AIP                     1,006,252                          
    Retention                           330,000                  
    RS     01/28/2008                               65,298       2,099,984  
Michael Williams
  AIP                     1,487,200                          
    Retention                           429,000                  
    RS     01/28/2008                               148,756       4,783,993  
Daniel Mudd
  AIP                     2,970,000                          
    Retention                                            
    RS     01/28/2008                               279,850       8,999,976  
Stephen Swad
  AIP                     1,365,000                          
    Retention                                            
    RS     01/28/2008                               99,502       3,199,984  
Enrico Dallavecchia
  AIP                     1,086,800                          
    Retention                                            
    RS     01/28/2008                               78,358       2,519,993  
Robert Levin
  AIP                     1,970,000                          
    Retention                                            
    RS     01/28/2008                               192,786       6,199,998  
 
 
(1) AIP indicates an award under our Annual Incentive Plan. Retention indicates the portion of the total awards under our 2008 Retention Program that may become payable, in whole or in part depending on our performance against goals, in February 2010. RS indicates restricted stock awards granted under our Stock Compensation Plan of 2003.
 
(2) The “Grant Date for Equity Awards” column shows the grant date for equity awards determined for financial statement reporting purposes pursuant to SFAS 123R and reflects the date our Board approved the equity award.
 
(3) For awards under our Annual Incentive Plan, the amounts shown are the target amounts established by our Board in February 2008 for 2008 performance. The amount to be paid to a named executive was to be based on our 2008 performance against pre-established corporate performance goals. Our Board and Compensation Committee also retained discretion to pay bonuses in amounts below or above the amount derived from measuring performance against corporate performance goals. Although it was expected that performance against corporate performance goals in 2008 would be in the range of 50% to 150% of target, the determination of corporate performance, and the potential size of awards, was not restricted to this range. As discussed above in “Compensation Discussion and Analysis — Impact of the Conservatorship on Executive Compensation — Conservator’s determination relating to 2008 Incentive


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Compensation and Establishment of 2008 Retention Program,” no bonuses were paid to our named executives under our Annual Incentive Plan for 2008 performance.
 
For awards under our 2008 Retention Program, the maximum amounts shown represent the portion of the total awards approved by the conservator in October 2008 that may become payable, in whole or in part, in February 2010. The amount of the payment will be determined based on our performance against goals that we expect will be established in the next few months and that must be approved by the conservator. The actual amounts paid will be based on our future performance. These maximum amounts represent 33% of the total retention awards each named executive received under the 2008 Retention Program. Information about the balance of the awards, which are service-based, is provided above in “Compensation Discussion and Analysis — Impact of the Conservatorship on Executive Compensation — Conservator’s determination relating to 2008 Incentive Compensation and Establishment of 2008 Retention Program.”
 
(4) Consists of restricted stock awarded in 2008 under the 2003 Plan. The awards vest in four equal annual installments beginning in January 2009. As the holder of restricted stock, the named executive has the rights and privileges of a shareholder as to the restricted stock, other than the ability to sell or otherwise transfer it, including the right to receive any dividends declared with respect to the stock and the right to provide instructions on how to vote. As discussed in “Part I — Item 1 — Business — Conservatorship, Treasury Agreements, Our Charter and Regulation of Our Activities — Conservatorship,” and in “Part II — Item 5 — Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Dividends,” our conservator has assumed all the powers of our stockholders, including power to vote the shares, and our conservator announced we would not pay any dividends on our common stock.
 
(5) The grant date fair value of restricted stock awards is calculated under SFAS 123R as the average of the high and low trading price of our common stock on the date of grant, or $32.16 per share. The closing price of our common stock on December 31, 2008 was $0.76.
 
Outstanding Equity Awards at 2008 Fiscal Year-End
 
The following table shows outstanding stock option awards and unvested restricted stock held by the named executives as of December 31, 2008. The market value of stock awards shown in the table below is based on a per share price of $0.76, which was the closing market price of our common stock on December 31, 2008.
 
                                                             
            Option Awards (2)   Stock Awards (2)
            Number of
  Number of
          Number of
  Market Value of
            Securities
  Securities
          Shares or
  Shares or
            Underlying
  Underlying
          Units of
  Units of
            Unexercised
  Unexercised
  Option
  Option
  Stock That
  Stock That
    Award
  Grant
  Options (#)
  Options (#)
  Exercise
  Expiration
  Have Not
  Have Not
Name
  Type (1)   Date   Exercisable   Unexercisable   Price ($)   Date   Vested (#)   Vested ($)
 
Herbert Allison
  N/A                                                        
David Johnson
  N/A                                                        
Kenneth Bacon
  O     11/16/1999       9,220               71.50       11/16/2009                  
    O     1/18/2000       16,536 (3)             62.50       1/18/2010                  
    O     11/21/2000       11,410               77.10       11/21/2010                  
    O     11/20/2001       13,080               80.95       11/20/2011                  
    O     1/21/2003       25,478               69.43       1/21/2013                  
    O     1/23/2004       27,622               78.32       1/23/2014                  
    RS     3/22/2006                                       12,380 (4)     9,409  
    RS     1/25/2007                                       28,462       21,631  
    RS     1/28/2008                                       62,189       47,264  


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            Option Awards (2)   Stock Awards (2)
            Number of
  Number of
          Number of
  Market Value of
            Securities
  Securities
          Shares or
  Shares or
            Underlying
  Underlying
          Units of
  Units of
            Unexercised
  Unexercised
  Option
  Option
  Stock That
  Stock That
    Award
  Grant
  Options (#)
  Options (#)
  Exercise
  Expiration
  Have Not
  Have Not
Name
  Type (1)   Date   Exercisable   Unexercisable   Price ($)   Date   Vested (#)   Vested ($)
 
David Hisey
  O     1/3/2005       7,500       2,500       71.31       1/3/2015                  
    RS     3/22/2006                                       3,825 (4)     2,907  
    RS     1/25/2007                                       12,066       9,170  
    RS     4/13/2007                                       10,000 (5)     7,600  
    RS     1/28/2008                                       29,244       22,225  
Thomas Lund
  O     11/16/1999       8,190               71.50       11/16/2009                  
    O     1/18/2000       14,331 (3)             62.50       1/18/2010                  
    O     11/21/2000       10,340               77.10       11/21/2010                  
    O     11/20/2001       11,170               80.95       11/20/2011                  
    O     1/21/2003       18,217               69.43       1/21/2013                  
    O     1/23/2004       22,310               78.32       1/23/2014                  
    RS     3/22/2006                                       13,000 (4)     9,880  
    RS     1/25/2007                                       31,459       23,909  
    RS     1/28/2008                                       65,298       49,626  
Michael Williams
  O     11/16/1999       12,290               71.50       11/16/2009                  
    O     1/18/2000       20,027 (3)             62.50       1/18/2010                  
    O     11/21/2000       35,610               77.10       11/21/2010                  
    O     1/16/2001       13,087 (3)             78.56       1/18/2010                  
    O     11/20/2001       44,735               80.95       11/20/2011                  
    O     1/21/2003       63,836               69.43       1/21/2013                  
    O     1/23/2004       73,880               78.32       1/23/2014                  
    RS     3/22/2006                                       30,806 (4)     23,413  
    RS     1/25/2007                                       69,466       52,794  
    RS     1/28/2008                                       148,756       113,055  
Daniel Mudd
  O     2/23/2000       114,855               52.78       3/5/2009                  
    O     2/23/2000       116,710 (3)             52.78       3/5/2009                  
    O     11/21/2000       89,730               77.10       3/5/2009                  
    O     11/20/2001       87,194               80.95       3/5/2009                  
    O     1/21/2003       82,918               69.43       3/5/2009                  
    O     1/23/2004       105,749               78.32       3/5/2009                  
Stephen Swad
  RS     5/2/2007                                       26,666 (5)(6)     20,266 (6)
    RS     5/2/2007                                       30,000 (6)     22,800 (6)
    RS     1/28/2008                                       99,502 (6)     75,622 (6)
Enrico Dallavecchia
  RS     6/5/2006                                       26,000 (6)     19,760 (6)
    RS     1/25/2007                                       35,079 (6)     26,660 (6)
    RS     1/28/2008                                       78,358 (6)     59,552 (6)
Robert Levin
  O     11/16/1999       47,300               71.50       11/16/2009                  
    O     1/18/2000       56,572 (3)             62.50       1/18/2010                  
    O     11/21/2000       43,430               77.10       11/21/2010                  
    O     11/20/2001       44,735               80.95       11/20/2011                  
    O     1/21/2003       72,445               69.43       1/21/2013                  
    O     1/23/2004       100,613               78.32       1/23/2014                  
    RS     3/22/2006                                       39,129 (4)     29,738  
    RS     1/25/2007                                       88,260       67,078  
    RS     1/28/2008                                       192,786       146,517  
 
 
(1) O indicates stock options and RS indicates restricted stock.

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(2) Except as otherwise indicated, all awards of options and restricted stock listed in this table vest in four equal annual installments beginning on the first anniversary of the date of grant. Amounts reported in this table for restricted stock represent only the unvested portion of awards. Amounts reported in this table for options represent only the unexercised portions of awards.
 
(3) The stock options vested 100% on January 23, 2004.
 
(4) The initial award amount vests in four equal annual installments beginning on January 24, 2007. In connection with the stock awards with a grant date of March 22, 2006, some of our named executives also received a cash award payable in four equal annual installments beginning on January 24, 2007. As of December 31, 2008, the unpaid portions of these cash awards were as follows: Mr. Bacon, $332,805; Mr. Hisey, $208,750; Mr. Lund, $349,470; Mr. Williams, $828,135; and Mr. Levin, $1,051,875.
 
(5) The initial award amount was scheduled to vest in three equal annual installments beginning on the first anniversary of the date of grant.
 
(6) After December 31, 2008, these shares were forfeited.
 
Option Exercises and Stock Vested in 2008
 
The following table shows information regarding vesting of restricted stock and restricted stock units held by the named executives during 2008 and for the payout of performance shares in January 2008 under a performance share program. The value realized on vesting has been calculated by multiplying the number of shares of stock by the fair market value of our common stock on the vesting date. No information is provided regarding stock option exercises because no stock options were exercised by named executives during 2008.
 
                 
    Stock Awards
    Number of Shares
  Value Realized on
Name
  Acquired on Vesting (#)   Vesting ($)
 
Herbert Allison
           
David Johnson
           
Kenneth Bacon
    22,315       693,190  
David Hisey
    16,766       490,468  
Thomas Lund
    23,573       734,526  
Michael Williams
    56,804       1,750,609  
Daniel Mudd
    131,242       3,868,694  
Stephen Swad
    23,334       705,037  
Enrico Dallavecchia
    24,693       738,485  
Robert Levin
    75,355       2,304,931  
 
Pension Benefits
 
Changes to our Retirement Program
 
In 2007, we made revisions to our retirement program. The primary changes were to limit ongoing participation in our defined benefit pension plans, including our Retirement Plan, Executive Pension Plan, Supplemental Pension Plan and Supplemental Pension Plan of 2003, which are described below, to employees who were hired prior to January 1, 2008 and who also satisfied a Rule of 45 as of July 1, 2008 (that is, the sum of their age and years of service was 45 or greater). Benefits in these plans for employees who did not meet the Rule of 45 were frozen as of June 30, 2008 and no officers are allowed to become participants in the Executive Pension Plan after November 20, 2007. Employees hired after December 31, 2007 and employees hired before January 1, 2008 who did not satisfy the Rule of 45 participate in an enhanced version of our Retirement Savings Plan (our 401(k) plan) and may be eligible to participate in our Supplemental Retirement Savings Plan, rather than our defined benefit pension plans. During 2008, Messrs. Hisey, Bacon, Lund, Williams, Mudd, Swad, Dallavecchia and Levin each participated in our defined benefit pension plans described below. Messrs. Allison and Johnson, who were hired after January 1, 2008, did not participate in our defined benefit pension plans, but are eligible to participate in our enhanced Retirement Savings Plan and our Supplemental Retirement Savings Plan, which are discussed below in “Nonqualified Deferred Compensation.”


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Defined benefit pension plans
 
Retirement Plan.   The Federal National Mortgage Association Retirement Plan for Employees Not Covered Under Civil Service Retirement Law, which we refer to as the Retirement Plan, provides benefits for eligible employees, including Messrs. Hisey, Bacon, Lund, Williams, Mudd, Swad, Dallavecchia and Levin. Normal retirement benefits are computed on a single life basis using a formula based on final average annual earnings and years of credited service. Participants are fully vested when they complete five years of credited service. Since 1989, provisions of the Internal Revenue Code of 1986, as amended, have limited the amount of annual compensation that may be used for calculating pension benefits and the annual benefit that may be paid. For 2008, the statutory compensation and benefit caps were $230,000 and $185,000, respectively. Before 1989, some employees accrued benefits based on higher income levels. For employees who retire before age 65, benefits are reduced by stated percentages for each year that they are younger than 65.
 
Executive Pension Plan.   The Executive Pension Plan supplements the benefits payable to key officers under the Retirement Plan. Participation in the Executive Pension Plan was frozen in November 2007. Each of our named executives other than Messrs. Allison, Johnson and Hisey participates in the Executive Pension Plan, except that Messrs. Swad and Dallavecchia terminated employment prior to vesting in the plan. The Compensation Committee approved the participants in the Executive Pension Plan. The Board of Directors approved each participant’s pension goal, which is part of the formula that determines pension benefits. Payments under the Executive Pension Plan are reduced by any amounts payable under the Retirement Plan.
 
The maximum annual pension benefit (when combined with the Retirement Plan benefit) that would be payable to Mr. Mudd is 50%, and to our other named executives who participate in the plan is 40%, of the named executive’s highest average covered compensation earned during any 36 consecutive months within the last 120 months of employment. Covered compensation generally is a participant’s average annual base salary, including deferred compensation, plus the participant’s other taxable compensation (excluding income or gain in connection with the exercise of stock options) earned for the relevant year, in an amount up to 150% of base salary for our executive vice presidents who participate in the plan and 200% of base salary for Mr. Mudd. Effective for benefits earned on and after March 1, 2007, the only taxable compensation other than base salary considered for the purpose of calculating covered compensation is a participant’s Annual Incentive Plan cash bonus, and for 2008 and 2009, the 2008 Retention Program bonuses.
 
Participants who retire before age 60 receive a reduced benefit. The benefit is reduced by 2% for each year between the year in which benefit payments begin and the year in which the participant turns 60. However, Mr. Mudd’s employment agreement provides that his benefit will be reduced by 3% for each year before he turns 60. Based on his age at termination of employment, Mr. Mudd’s benefit will commence when he reaches age 55. A participant is not entitled to receive a pension benefit under the Executive Pension Plan until the participant has completed five years of service as a plan participant, at which point the pension benefit becomes 50% vested and continues vesting at the rate of 10% per year during the next five years. Mr. Mudd was 90% vested in his Executive Pension Plan benefit upon his termination of employment in 2008. The benefit payment typically is a monthly amount equal to 1/12th of the participant’s annual retirement benefit payable during the lives of the participant and the participant’s surviving spouse. The benefit payment to the surviving spouse is subject to an actuarial adjustment for participants who joined the Executive Pension Plan on or after March 1, 2007 and for Mr. Mudd. If a participant dies before receiving benefits under the Executive Pension Plan, generally his or her surviving spouse will be entitled to a death benefit that begins when the participant would have reached age 55, based on the participant’s pension benefit at the date of death.
 
Supplemental Pension Plans.   We adopted the Supplemental Pension Plan to provide supplemental retirement benefits to employees whose salary exceeds the statutory compensation cap applicable to the Retirement Plan or whose benefit under the Retirement Plan is limited by the statutory benefit cap applicable to the Retirement Plan. Separately, we adopted the 2003 Supplemental Pension Plan to provide additional benefits to our officers based on their annual cash bonuses, which are not taken into account under the Retirement Plan or the Supplemental Pension Plan. Officers hired after December 31, 2007 are not eligible to participate in these plans. Benefits under the supplemental pension plans vest at the same time as benefits under the Retirement Plan. For 2008 and 2009, the pension benefit under the 2003 Supplemental Pension Plan will also be based on


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bonuses paid under the 2008 Retention Program. For purposes of determining benefits under the 2003 Supplemental Pension Plan, the amount of an officer’s annual cash bonus and retention bonus taken into account is limited in the aggregate to 50% of the officer’s base salary. Benefits under the supplemental pension plans typically commence at the later of age 55, separation from service or the date elected in advance by the participant. Officers who are eligible to participate in the Executive Pension Plan will receive the greater of their Executive Pension Plan benefits or combined Supplemental Pension Plan and 2003 Supplemental Pension Plan benefits.
 
The table below shows information about years of credited service and the present value of accumulated benefits for each named executive as of December 31, 2008. For Messrs. Williams, Mudd, Swad, Dallavecchia and Levin, the table shows benefits under the Executive Pension Plan, but not our supplemental plans, because we have assumed that as of December 31, 2008, upon the retirement of these named executives, the benefits each would receive under the Executive Pension Plan will be greater than the combined benefits each would receive under our supplemental plans, and that therefore these named executives will receive no benefits under our supplemental plans. Even though a benefit amount as of December 31, 2008 is shown for them in the table below, Mr. Swad and Mr. Dallavecchia terminated employment prior to vesting in our defined benefit pension plans. For Mr. Hisey, the table shows benefits under the Supplemental Pension Plan and the 2003 Supplemental Pension Plan, and not the Executive Pension Plan, because Mr. Hisey does not participate in the Executive Pension Plan. For Mr. Bacon and Mr. Lund, the table shows benefits under the Supplemental Pension Plan and the 2003 Supplemental Pension Plan, and not the Executive Pension Plan, because these named executives have a greater benefit under our combined supplemental plans.
 
Pension Benefits for 2008
 
                     
        Number of
   
        Years
  Present Value of
        Credited
  Accumulated
Name of Executive
 
Plan Name
  Service (#) (1)   Benefit ($) (2)
 
Herbert Allison
  Not applicable                
David Johnson
  Not applicable                
Kenneth Bacon
  Retirement Plan     16       342,011  
    Supplemental Pension Plan     16       476,381  
    2003 Supplemental Pension Plan     16       425,955  
    Executive Pension Plan                
David Hisey
  Retirement Plan     4       62,876  
    Supplemental Pension Plan     4       45,303  
    2003 Supplemental Pension Plan     4       57,628  
Thomas Lund
  Retirement Plan     14       234,750  
    Supplemental Pension Plan     14       341,335  
    2003 Supplemental Pension Plan     14       300,814  
    Executive Pension Plan                
Michael Williams
  Retirement Plan     18       320,108  
    Supplemental Pension Plan
2003 Supplemental Pension Plan
               
    Executive Pension Plan     8       2,160,564  
Daniel Mudd (3)
  Retirement Plan     9       150,910  
    Supplemental Pension Plan
2003 Supplemental Pension Plan
Executive Pension Plan
    9       6,687,324  
Stephen Swad (4)
  Retirement Plan     2       25,155  
    Supplemental Pension Plan
2003 Supplemental Pension Plan
               
    Executive Pension Plan     2       337,403  
Enrico Dallavecchia (4)
  Retirement Plan     3       37,544  
    Supplemental Pension Plan
2003 Supplemental Pension Plan
               
    Executive Pension Plan     3       523,297  


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        Number of
   
        Years
  Present Value of
        Credited
  Accumulated
Name of Executive
 
Plan Name
  Service (#) (1)   Benefit ($) (2)
 
Robert Levin
  Retirement Plan     28       574,485  
    Supplemental Pension Plan
2003 Supplemental Pension Plan
Executive Pension Plan
    19       3,288,520  
 
 
(1) Messrs. Williams and Levin each have fewer years of credited service under the Executive Pension Plan than under the Retirement Plan because they worked at Fannie Mae prior to becoming participants in the Executive Pension Plan.
 
(2) With the exception of Mr. Mudd, the present value has been calculated for the Executive Pension Plan assuming the named executives will remain in service until age 60, the normal retirement age under the Executive Pension Plan, and for the Retirement Plan assuming the named executives will remain in service until age 65, the normal retirement age under the Retirement Plan. Due to the termination of Mr. Mudd’s employment, his present value has been calculated for the Executive Pension Plan and the Retirement Plan with his actual benefit commencing at age 55. The values also assume that benefits under the Executive Pension Plan will be paid in the form of a monthly annuity for the life of the named executive and the named executive’s surviving spouse and benefits under the Retirement Plan will be paid in the form of a single life monthly annuity for the life of the named executive. The post-retirement mortality assumption is based on the RP 2000 white collar mortality table projected to 2010. For additional information regarding the calculation of present value and the assumptions underlying these amounts, see “Notes to Consolidated Financial Statements — Note 15, Employee Retirement Benefits.” Consistent with the terms of our pension plans, the present value calculations include as 2008 compensation the portion of retention awards under our 2008 Retention Program that are scheduled to be paid in 2009.
 
(3) Mr. Mudd’s employment agreement provides that if Mr. Mudd’s benefit payments are in the form of a joint and 100% survivor annuity, the payments will be actuarially reduced to reflect the joint life expectancy of Mr. Mudd and his spouse.
 
(4) Because their employment terminated prior to vesting, Messrs. Swad and Dallavecchia will not receive any benefits under our pension plans.
 
Nonqualified Deferred Compensation
 
The table below provides information on the nonqualified deferred compensation of the named executives in 2008, including compensation deferred under our Elective Deferred Compensation Plan I, Elective Deferred Compensation Plan II and our Performance Share Program. The table below does not include amounts deferred under our Supplemental Retirement Savings Plan, because none of our named executives had a balance under that plan during 2008.
 
Supplemental Retirement Savings Plan.   Our Supplemental Retirement Savings Plan is an unfunded, non-tax-qualified defined contribution plan that became effective July 1, 2008 as part of our redesign of our retirement benefits program. The Supplemental Retirement Savings Plan is intended to supplement our Retirement Savings Plan, or 401(k) plan, to provide benefits to participants who are not “grandfathered” under our defined-benefit Retirement Plan and whose annual eligible earnings exceed the IRS annual limit on eligible compensation for 401(k) plans (for 2008, the limit was $230,000). None of our named executives participated in the Supplemental Retirement Savings Plan during 2008.
 
For 2009, we will contribute 8% of a participating employee’s eligible compensation that exceeds the IRS annual limit for 2009 ($245,000). Eligible compensation for a year consists of base salary plus annual bonus earned in that year, plus retention bonuses earned for the year under the 2008 Retention Program, up to a combined maximum of two times base salary. Twenty-five percent of the contribution will vest after the participant has completed three years of service with us. The remaining 75% of the contribution will be immediately vested.
 
While the Supplemental Retirement Savings Plan is not funded, amounts credited on behalf of a participant under the Supplemental Retirement Savings Plan are deemed to be invested in mutual fund investments similar to the investments offered under our 401(k) plan. Participants may make changes to their investment elections on a daily basis.
 
Amounts deferred under the Supplemental Retirement Savings Plan are payable to participants in the January or July following separation from service with us, subject to a six month delay in payment for officers who

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are in the group of the 50 most highly-compensated officers. Withdrawals are not permitted from the Supplemental Retirement Savings Plan while the participant is employed.
 
Elective Deferred Compensation Plans.   Our Elective Deferred Compensation Plan II allowed eligible employees, including our named executives, to defer up to 50% of their salary and up to 100% of their bonus to future years, as determined by the named executive. Deferred amounts are deemed to be invested in mutual funds or in an investment option with earnings benchmarked to our long-term borrowing rate, as designated by the participants. The deferred compensation plan is an unfunded plan. The Elective Deferred Compensation Plan II applies to compensation that is deferred after December 31, 2004. Effective November 5, 2008, we determined not to permit additional elective deferrals under the plan.
 
The prior deferred compensation plan, the Elective Deferred Compensation Plan I, governs compensation deferred under that plan on or prior to December 31, 2004. Similar to the Elective Deferred Compensation Plan II, the Elective Deferred Compensation Plan I provides that deferred amounts are deemed to be invested in mutual funds or in an investment option with earnings benchmarked to our long-term borrowing rate, as designated by the participants, and is an unfunded plan. The Elective Deferred Compensation Plan I was amended in October 2007 to provide that benefits that were not scheduled to be paid prior to January 1, 2009 would be governed by the terms of the Elective Deferred Compensation Plan II.
 
Deferred Payments under Performance Share Program.   In 1997, we adopted guidelines under our Stock Compensation Plan of 1993 that permitted participants in our performance share program to defer payment of their awards until a later date or a specified event such as retirement. Under these guidelines, participants could choose to have their deferred performance share program payments converted into a hypothetical investment portfolio. This program has been frozen since December 31, 2004, and no new deferrals can be made.
 
Nonqualified Deferred Compensation for 2008
 
                                         
    Executive
  Registrant
  Aggregate
      Aggregate
    Contributions
  Contributions in
  Earnings in
  Aggregate
  Balance at
    in Last
  Last Fiscal
  Last Fiscal
  Withdrawals/
  Last Fiscal
Name of Executive
  Fiscal Year ($)   Year ($)   Year ($) (1)   Distributions ($)   Year-End ($) (2)
 
Herbert Allison
                             
David Johnson
                             
Kenneth Bacon
Elective Deferred Compensation Plan I
                13,575             256,489  
David Hisey
                             
Thomas Lund
Elective Deferred Compensation Plan I
                142,955             2,701,102  
Elective Deferred Compensation Plan II
    858,168             181,185             3,639,091  
Michael Williams
Elective Deferred Compensation Plan I
                      (534,042 )      
2001 Special Stock Award (3)
                (52,110 )           1,043  
Daniel Mudd
                             
Stephen Swad
Elective Deferred Compensation Plan II
    100,000             (26,219 )           73,781  
Enrico Dallavecchia
                             
Robert Levin
                                       
Deferred Performance Share Program
                (370,869 )           3,289,293  
 
 
(1) None of the earnings reported in this column are reported as 2008 compensation in the “Summary Compensation Table” because the earnings are neither above-market nor preferential.
 
(2) Of the amounts reported in this column, $932,960 was reported in our Summary Compensation Table as compensation for Mr. Lund for 2005.
 
As permitted under a transition period for changes in the tax laws relating to deferred compensation, our conservator approved a change to our Elective Deferred Compensation Plan I and Elective Deferred Compensation Plan II to permit participants to make a one-time election to receive payment in early 2009 of amounts they deferred under those plans that otherwise may have been paid later. As a result, Messrs. Bacon, Lund and Swad each elected to receive


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early payment of their balances under these plans. Mr. Bacon and Mr. Lund received distributions in January 2009, and Mr. Swad is scheduled to receive his distribution in March 2009.
 
(3) The Board previously approved a special stock award to officers for 2001 performance. On January 15, 2002, Mr. Williams deferred until retirement 1,142 shares he received in connection with this award. Aggregate earnings on these shares reflect dividends and changes in stock price. Mr. Williams’ number of shares has grown through the reinvestment of dividends to 1,373 shares as of December 31, 2008.
 
Potential Payments upon Termination or Change-in-Control
 
The information below describes and quantifies certain compensation and benefits that would become payable to each of our named executives under our existing employment agreements, plans and arrangements if our named executive’s employment had terminated on December 31, 2008, taking into account the named executive’s compensation and service levels as of that date and based on a per share price of $0.76, which was the closing price of our common stock on December 31, 2008. For our named executives who ceased serving as executive officers during 2008, we describe and quantify compensation and benefits that became payable as a result of their ceasing to serve as executive officers. The discussion below does not reflect retirement or deferred compensation benefits to which our named executives may be entitled, as these benefits are described above under “Pension Benefits” and “Nonqualified Deferred Compensation.” The information below also does not generally reflect compensation and benefits available to all salaried employees upon termination of employment with us under similar circumstances. We are not obligated to provide any additional compensation in connection with a change-in-control.
 
FHFA must approve any termination benefits we provide named executives.
 
FHFA, as our regulator, must approve any termination benefits we offer our named executives. Moreover, as our conservator, FHFA has directed that our Board consult with and obtain FHFA’s consent before taking any action involving termination benefits for any officer at the executive vice president level and above and including, regardless of title, executives who hold positions with the functions of the chief operating officer, chief financial officer, general counsel, chief business officer, chief investment officer, treasurer, chief compliance officer, chief risk officer and chief/general/internal auditor.
 
Potential Payments to Continuing Named Executives
 
We have not entered into employment agreements with any of our continuing named executives that would entitle our executives to severance benefits. Below we discuss provisions of our stock compensation plans, a prior cash award we made and our 2008 Retention Program that provides compensation that may become payable upon termination of employment in certain circumstances.
 
Stock Compensation Plans and 2005 Performance Year Cash Awards
 
Under the Fannie Mae Stock Compensation Plan of 1993 and the Fannie Mae Stock Compensation Plan of 2003, stock options, restricted stock and restricted stock units held by our employees, including our named executives, fully vest upon the employee’s death, total disability or retirement. In addition, upon these terminations, or if an option holder leaves our employment after age 55 with at least 5 years of service, the option holder, or the holder’s estate in the case of death, can exercise any stock options until the initial expiration date of the stock option, which is generally 10 years after the date of grant. For these purposes, “retirement” generally means that the executive retires at or after age 60 with 5 years of service or age 65 (with no service requirement).
 
In early 2006, Messrs. Hisey, Bacon, Lund and Williams received a portion of their long-term incentive stock awards for the 2005 performance year in the form of cash awards payable in four equal annual installments beginning in 2007. Under their terms, these cash awards are subject to accelerated payment at the same rate as restricted stock or restricted stock units and, accordingly, named executives would receive accelerated payment of the unpaid portions of this cash in the event of termination of employment by reason of death, total disability or retirement.
 
The table below shows the value of restricted stock awards that would have vested and cash awards that would have become payable if a named executive’s employment had terminated on December 31, 2008 as a result of death, total disability or retirement.


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Potential Payments in case of death, total disability or retirement as of December 31, 2008
 
                 
    Restricted Stock
   
    and Restricted
  2005 Performance
Name of Executive
  Stock Units (1)   Year Cash Award (2)
 
Herbert Allison
           
David Johnson
           
Kenneth Bacon
  $ 78,304     $ 332,805  
David Hisey
    41,903       208,750  
Thomas Lund
    83,415       349,470  
Michael Williams
    189,261       828,135  
 
 
(1) These values are based on a per share price of $0.76, which was the closing price of our common stock on December 31, 2008. No amounts are shown in the table for stock options because the exercise prices for our options exceeded the closing price of our common stock on December 31, 2008. Only Mr. Hisey holds stock options that were unvested and therefore would have been subject to acceleration on December 31, 2008. Messrs. Allison and Johnson have never been awarded Fannie Mae stock options.
 
(2) The reported amounts represent accelerated payment of cash awards made in early 2006 in connection with long-term incentive stock awards for the 2005 performance year.
 
Retention Awards under 2008 Retention Program.   In 2008, the conservator established our 2008 Retention Program, a broad-based employee retention program, under which Messrs. Bacon, Hisey, Lund and Williams received cash retention awards. A portion of these awards is “performance-based” and may become payable, in whole or in part, in February 2010. The amount of the payment will be determined based on our performance against goals that we expect will be established in the next few months by the Board and that must be approved by the conservator. The balance of each award is “service-based” and is payable in three installments, two of which have not yet been paid. These payments are scheduled to be paid in April 2009 and November 2009. Generally, retention award payments are payable only if the named executive remains employed by us on the payment date or is involuntarily terminated for reasons other than unsatisfactory performance. The unpaid performance-based and service-based portions of retention awards for our named executives as of December 31, 2008 were as follows: Mr. Bacon, $330,000 and $470,000; Mr. Hisey, $363,000 and $517,000; Mr. Lund, $330,000 and $470,000; and Mr. Williams: $429,000 and $611,000. More information about the retention awards is provided above in “Compensation Discussion and Analysis—Impact of the Conservatorship on Executive Compensation—Conservator’s determination relating to 2008 Incentive Compensation and Establishment of 2008 Retention Program” and in “— How did FHFA or Fannie Mae determine the amount of each element of 2008 direct compensation?—Retention Award Determinations.”
 
Life Insurance Benefits.   We currently have a practice of arranging for our officers, including our named executives, to purchase universal life insurance coverage at our expense, with death benefits of $5,000,000 for our Chief Executive Officer and $2,000,000 for our other named executives. An officer must enroll in the program to receive the life insurance coverage and Messrs. Allison and Johnson were not enrolled in the program during 2008. The death benefit is reduced by 50% at the later of retirement, age 60, or 5 years from the date of enrollment. We provide the executives with an amount sufficient to pay the premiums for this coverage until but not beyond termination of employment, except in cases of retirement or disability, in which case we continue to make scheduled payments.
 
Annual Incentive Plan.   Under our Annual Incentive Plan, the Compensation Committee has discretion to award prorated bonuses to employees who retire before bonuses are paid.
 
Retiree Medical Benefits.   We currently make certain retiree medical benefits available to our full-time salaried employees who retire and meet certain age and service requirements.
 
Payments to named executives no longer serving as executive officers
 
Arrangements with Daniel Mudd.   Mr. Mudd’s employment agreement provided for certain benefits upon the termination of his employment with us depending on the reason for his termination. On September 14, 2008, the Director of FHFA notified us that severance and other payments contemplated in the employment agreement with Mr. Mudd were golden parachute payments within the meaning of 12 U.S.C. § 4518(e)(4) and that those payments should not be paid, effective immediately. Specifically, FHFA directed us not to pay


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Mr. Mudd any salary beyond the date on which his employment terminated and not to pay him any annual bonus for 2008. FHFA also determined and directed us that no stock grants previously made to Mr. Mudd should vest. Finally, FHFA advised and directed us that, if Mr. Mudd elected to remain with us for a transition period of up to 90 days, we would pay Mr. Mudd his current salary during that transition period. Mr. Mudd’s employment terminated at the end of this 90-day period, on December 5, 2008, and we paid Mr. Mudd $247,500 in salary during this transition period.
 
In accordance with his employment agreement, following his termination of employment Mr. Mudd will receive continued medical and dental coverage for himself and his spouse and dependents (but in the case of Mr. Mudd’s dependents only for so long as they remain dependents or until age 21 if later), without premium payments by Mr. Mudd, for two years or if earlier, the date Mr. Mudd obtains comparable coverage through another employer. Assuming Mr. Mudd receives medical and dental coverage for two years after his termination of employment, we estimate the value of this benefit to be $32,238.
 
Mr. Mudd’s employment agreement also obligates him not to compete with us in the U.S., solicit any officer or employee of ours or our affiliates to terminate his or her relationship with us or to engage in prohibited competition, or to assist others to engage in activities in which Mr. Mudd would be prohibited from engaging, in each case for two years following termination. Mr. Mudd may request a waiver from these non-competition obligations, which the Board may grant if it determines in good faith that an activity proposed by Mr. Mudd would not prejudice our interests. Mr. Mudd’s employment agreement provides us with the right to seek and obtain injunctive relief from a court of competent jurisdiction to restrain Mr. Mudd from any actual or threatened breach of these obligations. Disputes arising under the employment agreement are to be resolved through arbitration, and we bear Mr. Mudd’s legal expenses unless he does not prevail. We also agreed to reimburse Mr. Mudd’s legal expenses incurred in connection with any subsequent negotiation, amendment or discussion of his employment agreement. Mr. Mudd has requested $34,906 in such legal expenses incurred as a result of his termination of employment.
 
Arrangements with Stephen Swad and Enrico Dallavecchia.   In February 2009, we entered into a separation agreement with each of Mr. Swad and Mr. Dallavecchia pursuant to which each former executive became entitled to receive a payment equivalent to one year of his base salary at the rate in effect on August 27, 2008, or $650,000 for Mr. Swad and $572,000 for Mr. Dallavecchia, minus any amounts previously received for periods on or after August 27, 2008, as well as the ability to continue to participate in our health insurance plans for a one-year period ending on August 27, 2009 at employee rates, a benefit with an estimated value of $12,320, and to receive up to $18,000 in outplacement services. The terms of the separation agreements were determined by FHFA after consultation with management.
 
The separation agreements provide that Mr. Swad and Mr. Dallavecchia may not solicit or accept employment with Freddie Mac or act in any way, directly or indirectly, to solicit or obtain employment or work for Freddie Mac for a period of 12 months. Under the separation agreements, each former executive agreed to a general release of the company from any and all claims arising from his employment with us or the termination of his employment. Each former executive also agreed to cooperate with any investigation conducted by Fannie Mae, its auditor, FHFA or any federal, state or local government authority relating to Fannie Mae.
 
The separation agreements will not terminate or limit the protections provided under the indemnification agreement between Fannie Mae and the former executives, the form of which was filed as Exhibit 10.8 to Fannie Mae’s Form 10 filed with the SEC on March 31, 2003, nor any director and officer insurance that was in effect during their employment.
 
Arrangements with Robert Levin.   We have a letter agreement with Mr. Levin, dated June 19, 1990, that provides him certain severance benefits if he is terminated for reasons other than for “cause.” In August 2008, Mr. Levin stepped down as Chief Business Officer following the announcement of his intention to retire in early 2009. Mr. Levin will not receive any severance benefits under that agreement as a result of his planned retirement. Mr. Levin has remained employed by us in a non-executive capacity as a senior advisor through February 2009. From the time he stepped down as Chief Business Officer through his expected retirement on February 28, 2009, we will have paid Mr. Levin approximately $403,000 in salary.


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Director Compensation
 
In 2008, our non-management directors received cash compensation and restricted stock unit awards that vested during the year as described in more detail below. The Nominating and Corporate Governance Committee historically reviewed non-management director compensation once a year and made recommendations for compensation of our non-management directors to the Board. Our Board determined cash compensation. We expect the Board and its Nominating and Corporate Governance Committee to resume these roles in the future, subject to the requirements, per FHFA’s direction, that the Board consult with and obtain FHFA’s consent before taking any action involving compensation or termination benefits of directors.
 
To be consistent with the compensation philosophy that applied to senior management, total compensation for non-management directors in place for most of 2008 was targeted at the median of companies in the comparator group we used at the time. This compensation for the directors was designed to be reasonable, appropriate and commensurate with the duties and responsibilities of their Board service. In determining 2008 compensation, the Board used the executive compensation consulting firm of Semler Brossy Consulting Group to provide director compensation information and advice.
 
In November 2008, in anticipation of its reconstitution of our Board, which is discussed above in “Item 10 — Directors, Executive Officers and Corporate Governance — Corporate Governance — Conservatorship and Delegation of Authority to Board of Directors,” FHFA approved a new program under which our non-management directors receive all compensation in cash, as described below.
 
The total 2008 compensation for our non-management directors is shown in the table below. Mr. Mudd and Mr. Allison, our only directors who also served as employees of Fannie Mae during 2008, were not entitled to receive any of the benefits provided to our non-management directors other than those provided under the Matching Gifts Program, which is available to all of our employees, and, in the case of Mr. Mudd, those available under the Director’s Charitable Award Program.
 
2008 Non-Employee Director Compensation Table
 
                                         
    Fees Earned
               
    or Paid
  Stock
  Option
  All Other
   
    in Cash
  Awards
  Awards
  Compensation
  Total
Name (2)
  ($) (3)   ($) (1)(4)   ($) (5)   ($) (6)   ($) (1)
Current Directors
                                       
Dennis R. Beresford
    156,129       83,344             29,619       269,092  
William Thomas Forrester
    5,806                         5,806  
Brenda J. Gaines
    148,521       83,344             7,500       239,365  
Charlynn Goins
    6,022                         6,022  
Frederick B. “Bart” Harvey III
    15,806       10,010                   25,816  
Philip A. Laskawy
    10,134                         10,134  
Egbert L. J. Perry
    5,591                         5,591  
David H. Sidwell
    5,591                         5,591  
Diana L. Taylor
    5,591                         5,591  
Former Directors
                                       
Stephen B. Ashley
    431,250       241       7,030       153,752       592,273  
Louis J. Freeh
    129,861       241             13,202       143,304  
Karen N. Horn
    127,917       241             29,636       157,794  
Bridget A. Macaskill
    140,264       241             30,099       170,604  
Leslie Rahl
    138,667       241       7,030       81,670       227,608  
John C. Sites, Jr. 
    129,861       241                   130,102  
Greg C. Smith
    138,667       241       3,243       60,842       202,993  
H. Patrick Swygert
    141,222       241       7,030       147,147       295,640  
John K. Wulff
    138,667       241       8,468       42,444       189,820  
 
 
(1) Because the amounts shown in the “Stock Awards” column for Mr. Beresford, Ms. Gaines and Mr. Harvey are based on trading price of our common stock on the date of grant, the values shown are significantly higher than the value of


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these awards to our directors. If, for the awards that remained unvested as of December 31, 2008, we recalculate these amounts using $0.76, the closing price of our common stock on December 31, 2008, instead of the grant date fair value, the “Stock Awards” amounts for these directors would be $2,261 for Mr. Beresford, $2,261 for Ms. Gaines and $1,463 for Mr. Harvey, and the “Total” compensation amounts for these directors would be $188,009 for Mr. Beresford, $158,282 for Ms. Gaines and $17,269 for Mr. Harvey.
 
(2) Bart Harvey joined our Board in August 2008. The following members of our Board of Directors resigned in September 2008: Stephen Ashley, Louis Freeh, Karen Horn, Bridget Macaskill, Daniel Mudd, Leslie Rahl, John Sites, Jr., Greg Smith, Patrick Swygert and John Wulff. Philip Laskawy joined our Board in September 2008. In November 2008, FHFA reconstituted our Board of Directors. William Forrester, Charlynn Goins, Egbert Perry, David Sidwell and Diana Taylor joined our Board in December 2008.
 
(3) Ms. Rahl and Mr. Swygert elected to defer all of their retainer and fees to later years. On September 30, 2008, Ms. Rahl deferred $24,917 and Mr. Swygert deferred $27,472 in retainers and fees in the form of cash. This amount was initially to be deferred in an account denominated in our stock but, at FHFA’s direction, the deferred payment was denominated in cash. As permitted under a transition period for changes in the tax laws relating to deferred compensation, our conservator approved a change to the deferral program to permit participants to make a one-time election to receive payment in January 2009 of amounts they deferred under the plan that otherwise may have been paid later. As a result, Ms. Rahl and Mr. Swygert received distributions in January 2009 of compensation which was previously deferred under this program, in the following amounts: Ms. Rahl: $24,917 and 5,003 shares, and Mr. Swygert: $27,472 and 5,003 shares.
 
(4) These amounts represent the dollar amounts we recognized for financial statement reporting purposes with respect to 2008 for the fair value of restricted stock units granted during 2008 in accordance with SFAS 123R or, in the case of directors who ceased serving as directors, for the dividend equivalents we paid them on shares they forfeited during 2008 upon cessation of service. The fair value of the restricted stock is calculated as the average of the high and low trading price of our common stock on the date of grant, which was significantly higher than $0.76, the closing price of our common stock on December 31, 2008.
 
As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Under the terms of our stock compensation plan, in May 2008 each of our non-employee directors at the time received an automatic grant of restricted stock units with a SFAS 123R grant date fair value of $134,972 immediately following the annual meeting of shareholders, and in August 2008 Mr. Harvey received an automatic grant of restricted stock units with a SFAS 123R grant date fair value of $20,873 upon joining our Board. Each non-employee director who resigned from our Board in September 2008 forfeited these restricted stock units, which had not yet vested. As of December 31, 2008, Ms. Gaines and Mr. Beresford each held 4,817 shares of restricted deferred stock, having elected to defer receipt of their annual award of restricted stock units until six months after ceasing to be a director. As of December 31, 2008, Mr. Harvey held 4,014 restricted stock units. No other directors held shares of restricted stock, restricted stock units or restricted deferred stock.
 
(5) No director has received a stock option award since 2005. These amounts represent the dollar amounts we recognized for financial statement reporting purposes with respect to 2008 for the fair value of stock option awards granted during 2005 and in prior years in accordance with SFAS 123R. For the assumptions used in calculating the value of these awards, see “Notes to Consolidated Financial Statements — Note 1, Summary of Significant Accounting Policies — Stock-Based Compensation,” in our Annual Report on Form 10-K for the year ended December 31, 2005. As of December 31, 2008, the persons who served as our non-employee directors during 2008 held options to purchase the following number of shares of common stock, with exercise prices ranging from $54.37 to $79.2175 per share and expiration dates ranging from May 20, 2009 to September 30, 2009: Mr. Ashley, 24,000 shares; Ms. Rahl, 5,333 shares; Mr. Smith, 666 shares; Mr. Swygert, 4,000 shares; and Mr. Wulff, 2,000 shares. None of our other 2008 non-management directors have been awarded Fannie Mae stock options.
 
(6) “All Other Compensation” consists of the following charitable programs, which are discussed in greater detail following this table:
 
(i) Our estimated incremental cost of providing Board members benefits under our Director’s Charitable Award Program in the following amounts: Stephen Ashley: $148,752; Dennis Beresford: $29,619; Louis Freeh: $13,202; Karen Horn: $29,136; Bridget Macaskill: $27,599; Leslie Rahl: $71,670; Greg Smith: $59,842; Patrick Swygert: $147,147; and John Wulff: $42,444. We estimate our incremental cost of providing this benefit for each director based on (1) the present value of our expected future payment of the benefit that became vested during 2008 and (2) the time value during 2008 of amounts vested for that director in prior years. We estimated the present values of our expected future payment based on the age and gender of our directors, the RP 2000 white collar mortality table projected to 2010 and a discount rate of approximately 3.8%. The costs shown also reflect an adjustment in the present value of vested benefits due to our lower cost of corporate debt during 2008.
 
(ii) Gifts we made or will make under our matching gifts program, in the following amounts: Brenda Gaines: $7,500; Karen Horn: $500; Bridget Macaskill: $2,500; Leslie Rahl: $10,000; and Greg Smith: $1,000.
 
(iii) For Mr. Ashley, $5,000 under a matching contribution program in connection with the Fannie Mae Political Action Committee. The Fannie Mae Political Action Committee has ceased accepting or making contributions, and this matching contribution program has been discontinued.


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No amounts are included for a furnished apartment we leased near our corporate offices in Washington, DC for use by Mr. Ashley, the former non-executive Chairman of our Board, when he was in town on company business. Provided that he reimbursed us, Mr. Ashley was permitted to use the apartment up to twelve nights per year when he was in town but not on company business.
 
Post-Conservatorship Compensation Arrangements for our Non-Management Directors
 
From October 1 to December 18, 2008, our directors were not paid for their services. As discussed above in “Corporate Governance — Conservatorship and Delegation of Authority to Board of Directors,” from the time the conservatorship commenced until December 19, 2008, our directors had no power or duty to manage, direct or oversee the business and affairs of Fannie Mae. Since December 19, 2008, our non-management directors have been paid a retainer at an annual rate of $160,000, with no meeting fees. Committee chairs and Audit Committee members receive an additional retainer at an annual rate of $25,000 for the Audit Committee chair, $15,000 for the Risk Policy and Capital Committee chair and $10,000 for all other committee chairs and each member of the Audit Committee. All payments are in cash, not stock. In recognition of the substantial amount of time and effort necessary to fulfill the duties of non-executive Chairman of the Board, the annual retainer for our non-executive Chairman, Mr. Laskawy, is $290,000.
 
Pre-Conservatorship Compensation Arrangements for our Non-Management Directors
 
Cash Compensation.   During the first nine months of 2008, our non-management directors, with the exception of the non-executive Chairman of our Board, were paid a retainer at an annual rate of $100,000, with no meeting fees. Committee chairs received an additional retainer at an annual rate of $25,000 for the Audit Committee chair and $15,000 for all other committee chairs. The annual retainer for our non-executive Chairman of the Board, Mr. Ashley, was $500,000.
 
Restricted Stock Awards.   Under the Fannie Mae Stock Compensation Plan of 2003, each non-management director received an annual grant of restricted stock units immediately following the annual meeting of shareholders in 2008. The aggregate fair market value on the date of grant in 2008 equaled $135,000. A non-management director who was newly appointed or elected after an annual meeting of shareholders was to receive a pro-rated grant of restricted stock units. Restricted stock units, which received dividend equivalent payments to the same extent as our common stock, generally may not be sold, transferred or encumbered. The restricted stock units were scheduled to vest in full on the day before the next annual meeting of shareholders, but in no event later than one year after the grant. Unvested restricted stock units are subject to forfeiture if a director ceases to be a director for any reason other than death or disability. As discussed above, all future director compensation is to be in cash.
 
One-Time Supplemental Cash Retainer.   In January 2008, the Board awarded our non-management directors, including Mr. Ashley, a one-time supplemental cash retainer in the amount of $56,250 in consideration of the transition to our new director compensation program for the period from January to May 2008. The amount of the one-time supplemental cash retainer was meant to be equivalent to the pro rata value of restricted stock units that would have vested under the new compensation program between January 2008 and May 2008 if an equity grant had been made under the program in January 2008. The Board’s independent compensation consultant concurred that the award was reasonable and appropriate.
 
Deferred Compensation.   Prior to the recent changes to our director compensation arrangements, non-management directors could 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 our 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 above under “Nonqualified Deferred Compensation — Elective Deferred Compensation Plans.” Plan participants elected 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 have been 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 and are paid from our general assets.


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Under our Stock Compensation Plan of 2003, non-management directors were also able to elect to convert their cash retainer to deferred shares. In addition, non-management directors were generally able to elect to defer receipt of their annual award of restricted stock units. In either case, dividend equivalents for the vested deferred shares were credited to the director’s account and reinvested in additional deferred shares. The deferred shares of common stock are generally to be paid to the director six months after the director ceases to be a director and separates from service on the Board.
 
In connection with recent changes to our compensation arrangements for non-management directors, directors may no longer elect to defer their compensation and, as approved by our conservator, directors were able to elect to receive previously deferred cash retainers in January 2009.
 
Fannie Mae Director’s Charitable Award Program.   In 1992, we established our Director’s Charitable Award Program. Under the program, we agreed to make donations upon the death of a director to charitable organizations or educational institutions of the director’s choice. We agreed to donate $100,000 for every year of service by a director up to a maximum of $1,000,000. The program has generally been funded by life insurance contracts on the lives of participating current and former directors. The program benefits will not be provided for service after we entered conservatorship, and no determination has been made yet regarding whether benefits under the program for prior service will be provided, amended or terminated.
 
Additional Arrangements with our Non-Management Directors
 
Matching Gifts Programs.   To further our support for charitable giving, non-employee directors are able to participate in our corporate matching gifts program on the same terms as our employees. Under this program, gifts made by employees and directors to Section 501(c)(3) charities are matched, up to an aggregate total of $10,000 in any calendar year, including up to $500 that may be matched on a 2-for-1 basis. In 2008 before the conservatorship, directors were also able to participate in a matching contribution program under which an employee or director who contributed at certain levels to the Fannie Mae Political Action Committee could direct that an equal amount, up to $5,000, be donated by us to charities chosen by the director or employee in his or her name. The Fannie Mae Political Action Committee has ceased accepting or making contributions, and this matching contribution program has been discontinued.
 
Stock Ownership Guidelines for Directors.   In January 2009, our Board eliminated our stock ownership requirements for directors and for senior officers in light of the difficulty of meeting the requirements at current market prices and because we have ceased paying stock-based 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.


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