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To: Jerry Miller who wrote (9728)	2/20/2002 2:00:36 PM
From: Jerry Miller	Read Replies (1) \| Respond to of 17683

Hey David Faber, sounds like Becky Quick got her copy of this. we thought you should have one of your very own. frame it and label it as one more story that got away. "Here is our response to today's WSJ article. This is currently not available online. If you would like to talk to us personally, you may call us at 202.752.7115. -------- Original Message -------- Subject: Frank Raines re: Wall Street Journal's Editorial Date: Wed, 20 Feb 2002 10:53:16 -0500 From: "Jayne J Shontell" <jayne_j_shontell@fanniemae.com> Organization: Fannie Mae Dear Investors: Here we go again. Normally when the Wall Street Journal prints an attack piece on Fannie Mae, our chief of investor relations, Jayne Shontell, writes you to set the record straight and correct the errors of fact and assertion. But because this morning’s Journal was so egregious in its disregard for the facts and irresponsible in its assertions, I wanted to stand in to set the record straight. Everyone knows that the Wall Street Journal has a long history of hostility toward Fannie Mae and its mission. The consistency of this obsession means this editorial comes as no surprise. The Journal is entitled to its opinion but it is not entitled to make up facts, nor is it entitled to name-calling and invidious comparisons. This editorial is so replete with factual errors that it undermines anyone’s ability to agree with its assertions and conclusions. Rather than providing a point-by-point correction and rebuttal of the errors, misstatements, distortions and wholesale inventions, let me just simply list the most egregious ones that anyone who reads our voluminous disclosures would know are wrong: The size of ours and Freddie Mac’s debt is overstated by more than $1 trillion. Our leverage is overstated by a factor of 100 percent. The statement we cut back on our use of credit insurance is incorrect. Last year our credit insurers absorbed 85 percent of the losses on our loans. The statement that we use “all manner of derivatives” is wrong – we use swaps, swaptions and caps, which are among the most straightforward types of derivatives that exist, and we use them to reduce our risks. The claim about a write-down of shareholder equity is a gross mischaracterization of a well-known effect of implementing the new FAS 133 accounting standard and in no way impairs our regulatory capital, as every financial regulator has stated. The claim about our financial disclosures is ridiculous – with our October 2000 voluntary initiatives, we provide more, and more detailed, disclosures than any large financial company in America, and we are widely recognized for doing so. The claim about our fees paid to our auditors is wrong – the vast majority of our non-audit fees are tax and validation fees supporting our issuance of REMIC securities. The claim that our interest rate risk management is “dangerous” if rates turned volatile ignores that rates have been volatile for the last 15 years – and still Fannie Mae was one of only three companies to have had double- digit operating EPS over those 15 years. It seems that the circumstances of Fannie Mae’s birth as a government-owned entity makes our company illegitimate in the eyes of the Journal no matter how well we perform as a private company, manage our risks or operate in complete transparency. The Fannie Mae described by the Journal is not the Fannie Mae that investors, analysts or informed, objective observers see and know. Those who know Fannie Mae see a company that has not only weathered, but also performed quite well through, the most volatile economic conditions. They see a Fannie Mae with the most advanced financial disclosures in our industry, regarded by Moody’s as “a new standard … for the global financial market.” As Moody’s went on to say, “The leadership shown by Freddie Mac and Fannie Mae could prove difficult for other firms to ignore, and could usher in a wave of enhanced financial risk disclosure. This may prove to be one of the more important of the GSEs' initiatives.” Those who know Fannie Mae also see a company whose derivative counterparties are highly rated and of which we require – in belt-and-suspenders fashion – to post significant collateral. Informed observers see a Fannie Mae with a risk-based, stress-test capital regime that is not only not easy to live under, but one we would invite – even dare – any other financial institution to adopt and apply. And informed observers see a Fannie Mae that not only just last year added $4.3 billion to our equity capital, but also added $5 billion in subordinated debt – on a voluntary basis – as an additional and market-sensitive capital cushion. There are many lessons to be learned from the Enron debacle. One is the importance of careful fundamental analysis of major companies. Fannie Mae welcomes – we seek out – that type of analysis. After constant, on-site examination by our regulator and 11 Congressional hearings over the last two years, no company including Enron has been more closely scrutinized, more frequently, than Fannie Mae. We’ve been pounding the pavement for years, urging everyone to look more closely at our company. And we give out so much information that anyone that wants to understand our company can do that, and we will help them do that. It is too bad the Wall Street Journal did not take the time – nor has the interest – in getting Fannie Mae right. Frank Raines Chairman and CEO