of the Fannie Mae Stock Compensation Plan of 2003 without your specific instructions. In addition, your broker will not be able to vote on any shareholder proposal because this type of proposal is not considered a routine ~~matters.~~
matter.

If your broker does not have discretion to vote your shares held in street name on a particular proposal because it is not considered to be a routine matter and you ~~don’t~~do not give your broker instructions on how to vote your shares, the votes will be “broker ~~non-votes”.~~non-votes.” We count broker non-votes for quorum purposes, but we do not count broker non-votes ~~(or abstentions)~~ as votes ~~“for” or “against” any proposal.~~
~~If you don’t vote shares held in your name, your shares~~cast as it relates to a particular proposal and, therefore, they will not ~~be voted.~~
have any effect on the outcome of a vote on such proposal.

Could other matters be decided at the 2007 annual meeting?

We ~~don’t~~do not know of any other matters that will be considered at the annual meeting. If ~~a shareholder proposal that was excluded from this proxy statement by Fannie Mae~~any other matter is ~~properly~~ brought before the ~~meeting, we may vote the proxies against the proposal. If any other matters arise at the annual~~ meeting, the proxies will be voted at the discretion of the proxy holders.

What happens if the 2007 annual meeting is postponed or adjourned?

Your proxy will still be valid and may be voted at the postponed or adjourned meeting. You will still be able to change or revoke your proxy until it is voted.

~~Can I access Fannie Mae’s proxy materials and~~Who can attend the 2007 annual ~~report electronically?~~meeting?
~~Our proxy statement and annual report~~

You must be a shareholder to ~~shareholders are available on Fannie Mae’s Web site at www.fanniemae.com.~~
2
~~How We Have Done~~
~~Annual Report~~
~~We delivered Fannie Mae’s 2002 annual report to shareholders to you with this proxy statement. We urge you to read it carefully.~~
~~Performance Graph~~
~~The following graph and table compare~~attend the annual ~~changes in Fannie Mae’s cumulative total return~~meeting. See“How do I vote?” for ~~the last five years with the cumulative total return of:~~
~~the S&P 500 Index; and~~requirements for meeting attendance.
~~the S&P Financials Index.~~
The following graph and table show the value at year-end of $100 invested at the closing price on December 31, 1997 in Fannie Mae common stock, the S&P 500, and the S&P Financials. The comparisons in this graph and table are set forth in response to Securities and Exchange Commission (“SEC”) disclosure requirements, and therefore are not intended to forecast or to be indicative of future performance of our common stock.
December 31

Fannie Mae

S&P 500

S&P Financials
1997

$
100

$
100

$
100
1998


132


129


111
1999


113


156


116
2000


160


141


146
2001


149


125


133
2002


123


97


113
* “Cumulative Total Return”
In addition, if you represent an entity that is ~~calculated under the assumption of dividend reinvestment. $100 invested in Fannie Mae at the end of 1997 yielded $123 by December 31, 2002 versus $97 for the S&P 500 and $113 for the S&P Financials.~~
3
~~Stock Ownership~~
~~Fannie Mae encourages its directors, officers, and employees to own Fannie Mae stock to align their interests with the interest of shareholders. As such,~~ a significant portion of the compensation paid to directors and officers is paid in Fannie Mae common stock, as described in more detail later in the proxy statement. Employees of Fannie Mae also have the opportunity to own Fannie Mae stock through our employee stock purchase plan, bonus stock opportunities, and our ESOP. We believe that the stock ownership of our directors, officers, and employees has played a valuable role in Fannie Mae’s outstanding performance.
In April 2003, the Board of Directors added another key component to our stock ownership principles—formal stock ownership guidelines for our executive officers.Under the guidelines, executive officers of Fannie Mae are required to hold sharesbeneficial owner of Fannie Mae common stock on the Record Date, you must present evidence of your authority to act as the legal representative of that entity.
If I cannot attend the 2007 annual meeting in person, will it be Web cast?
Yes, there will be a live audio Web cast of the annual meeting atwww.fanniemae.com. Note that you must be present in person at the annual meeting to ask questions. The Web cast of the annual meeting will be available for 30 days after the meeting.

CORPORATE GOVERNANCE

Corporate Governance Progress

We have made a great deal of progress in improving our corporate governance policies and practices. The Board and management of Fannie Mae continually monitor the latest developments in corporate governance, as well as the most recent laws, rules, and regulations, and have proactively adopted numerous new or revised policies and procedures to ensure that the Company adopts the latest and best corporate governance practices. Some examples of our progress include:


	•	separating the positions of Chief Executive Officer and Chairman and, as a result of the Board’s emphasis on the independence of our directors, structuring the Board so that all but one of our directors are independent;

	•	recruiting eight new members of our Board of Directors to fill vacancies caused by normal turnover, with an emphasis on constituting the Board with directors having the combination of skills, backgrounds, and expertise needed to oversee and guide the company most effectively;

	•	the establishment of stock ownership requirements for our senior executives and stock ownership guidelines for our non-management directors; and

	•	the adoption of majority vote standards for elections of directors.

We continue to evaluate legal and regulatory requirements and emerging best practices and will adopt them as appropriate.

Our corporate governance materials, including our Corporate Governance Guidelines, Codes of Conduct, and Board committee charters are available on our Web site atwww.fanniemae.com, under “Corporate Governance.” These materials are also available in print to any shareholder upon request. The Board regularly reviews corporate governance developments and modifies its Corporate Governance Guidelines, committee charters, and key practices as warranted.

Corporate Governance Guidelines

Our Corporate Governance Guidelines (“Guidelines”), as adopted by our Board of Directors, include guidelines for determining director independence and qualifications for directors. The Board regularly reviews corporate governance developments and modifies our Guidelines and the charters of our Board committees as appropriate.

Codes of Conduct

We have a Code of Conduct for employees, and all of our employees, including our officers, are required to read and certify their compliance with the Code of Conduct annually. The code of ethics for our Chief Executive Officer and senior financial officers that is described in the Sarbanes-Oxley Act of 2002 and provided for in the implementing regulations of the SEC is included in our employee Code of Conduct. The Compliance Committee is responsible under its charter for reviewing the employee Code of Conduct.

We also have a Code of Conduct and Conflicts of Interest Policy for Members of the Board of Directors. Directors are required to read and certify their compliance with this code annually. The Nominating and Corporate Governance Committee is responsible for overseeing compliance with the Code of Conduct and Conflict of Interests Policy for Members of the Board of Directors.

We will post on our web site any change to or waiver from the employee Code of Conduct for any of our executive officers, and any change to or waiver from the Code of Conduct and Conflict of Interests Policy for Members of the Board of Directors for any of our directors.

Director Independence

We believe that a central component of good corporate governance is having a Board that is composed of a substantial majority of directors who are independent from management. The Board of Directors has adopted standards for director independence that meet, and in some respects exceed, those of the NYSE.

Even if no relationship or transaction exists that would disqualify a director from being “independent” under these standards, the Board does not consider any of our directors to be “independent” unless the Board affirmatively makes a determination that the director has no material relationship with Fannie Mae, either directly or through an organization that has a material relationship with us. A relationship is “material” if, in the judgment of the Board, it would interfere with the director’s independent judgment. In addition, under the NYSE’s listing requirements for audit committees, members of a company’s audit committee must meet additional, heightened independence criteria. Our own independence standards require all of our independent directors to meet these more rigorous criteria.

The independence standards for our directors, which are set forth in the Guidelines, are set forth below.

Employment. A director will not be considered independent if, within the preceding five years:


	•	the director was employed by us; or

	•	an immediate family member of the director was employed by us as an executive officer;

Auditor Affiliation. A director will not be considered independent if:


	•	the director is a current partner or employee of our outside auditor, or within the preceding five years, was (but is no longer) a partner or employee of our outside auditor and personally worked on our audit within that time; or

	•	an immediate family member of the director is a current partner of our outside auditor, or is a current employee of our outside auditor participating in the firm’s audit, assurance or tax compliance (but not tax planning) practice, or within the preceding five years, was (but is no longer) a partner or employee of our outside auditor and personally worked on our audit within that time.

Compensation Committee Interlocks. A director will not be considered independent if, within the preceding five years:


	•	the director was employed by a company other than Fannie Mae at a time when any of our current executive officers was a member of that company’s compensation committee; or

	•	an immediate family member of the director was employed as an officer by a company other than Fannie Mae at a time when any of our current executive officers was a member of that company’s compensation committee.

Compensation. A director will not be considered independent if, within the preceding five years:


	•	the director received any compensation from us, directly or indirectly, other than fees for service as a director; or

	•	an immediate family member of the director received any compensation from us, directly or indirectly, other than compensation received for service as a non-executive employee of our company.

Business Relationships. A director will not be considered independent if:


	•	the director is a current executive officer, employee, controlling shareholder or partner of an entity that does or did business with us if, within the preceding five years, we made payments to, or received payments from, that entity, and, in any single fiscal year, those payments exceeded $1,000,000 or 2% of the entity’s consolidated gross annual revenues, whichever is greater; or

	•	an immediate family member of the director is a current executive officer of a corporation or other entity that does or did business with us if, within the preceding five years, we made payments to, or received


		payments from, the entity that, in any single fiscal year were in excess of $1,000,000 or 2% of the entity’s consolidated gross annual revenues, whichever is greater.

Charitable Contributions. A director will not be considered independent if the director or the director’s spouse is an executive officer, employee, director or trustee of a nonprofit organization to which we or the Fannie Mae Foundation makes or has made contributions within the preceding three years that, in a single year, were in excess of 5% of the organization’s consolidated gross annual revenues, or $100,000, whichever is less. Amounts contributed under our matching gifts program are not included in the contributions calculated for purposes of this standard.

Our independence standards, which in some respects exceed those established by the NYSE, also provide that, after considering the relevant facts and circumstances, our Board may determine in its judgment that a director is independent (in other words, the director has no relationship with us that would interfere with the director’s independent judgment), even though the director does not meet the standards listed above as long, as the determination of independence is consistent with the NYSE definition of “independence.” If neither our guidelines nor the NYSE independence requirements address a particular relationship, the determination of whether the relationship is material, and whether a director is independent, will be made by our Board, based upon the recommendation of the Nominating and Corporate Governance Committee.

Our Board of Directors, with the assistance of the Nominating and Corporate Governance Committee, has reviewed the independence of all current Board members under the listing standards of the NYSE, and the standards of independence adopted by the Board contained in our Guidelines, as outlined above. Based on its review, the Board has affirmatively determined that all of our independent directors meet the director independence standards of our Guidelines and the NYSE, and that each of the following 12 directors is independent: Stephen B. Ashley, the non-executive Chairman, Dennis R. Beresford, Louis J. Freeh, Brenda J. Gaines, Karen N. Horn, Bridget A. Macaskill, Joe K. Pickett, Leslie Rahl, John C. Sites, Jr., Greg C. Smith, H. Patrick Swygert, and John K. Wulff.

In determining the independence of each of our Board members, the Board of Directors considered the following relationships in addition to those addressed by the standards contained in our Guidelines as set forth above:


	•	Ms. Gaines’ past service as an independent director of a corporation that provides insurance services to the Fannie Mae Foundation, for which an immaterial amount of premiums is paid;

	•	Our payments of substantially less than $1,000,000, pursuant to our bylaws and indemnification obligations, of legal fees to a law firm with which Ms. Rahl’s husband is a partner, as a result of the law firm’s representation of Ms. Rahl in connection with various lawsuits and regulatory investigations arising from Ms. Rahl’s service on our Board;

	•	Contributions by the Fannie Mae Foundation of over $100,000 in 2004 and 2006 (before Mr. Sites became a Fannie Mae director) to an affiliate of Covenant House where Mr. Sites served as a director through 2006, and Mr. Sites’ role as a consultant to a financial institution that could in the future invest in mortgage businesses or mortgages;

	•	Contributions totaling less than $100,000 in 2006 by usand/or the Fannie Mae Foundation to Howard University, where Mr. Swygert serves as President; and

	•	Mr. Wulff’s service as an independent director of Moody’s Corporation, which provides specific research and investor services to us, and for which we make payments of substantially less than 2% of Moody’s and our consolidated gross annual revenues.

Mr. Mudd is not considered an independent director under the Guidelines because of his position as our Chief Executive Officer.

Executive Sessions

Our non-management directors meet regularly in executive session without management present. Time for an executive session is reserved at every regularly scheduled Board meeting. Stephen B. Ashley, in his capacity as Chairman of the Board, presides over these sessions. During 2006, our non-management directors met 13 times in executive session.

Certain Transactions and Relationships

Policies and Procedures Relating to Transactions with Related Persons. We review relationships and transactions in which we are a participant and in which any of our directors or executive officers, or the immediate family members of either, has an interest to determine whether any of those persons has a material interest in the relationship or transaction. Our current written policies and procedures for review, approval or ratification of relationships or transactions with related persons are set forth in our:


	•	Code of Conduct and Conflicts of Interest Policy for Members of the Board of Directors;

	•	Board of Directors’ delegation of authorities and reservation of powers;

	•	Code of Conduct for employees;

	•	Conflict of Interest Policy and Conflict of Interest Procedure for employees; and

	•	Employment of Relatives Practice.

Our Code of Conduct and Conflicts of Interest Policy for Members of the Board of Directors prohibits our directors from engaging in any conduct or activity that is inconsistent with our best interests. It requires each of our directors to excuse himself or herself from voting on any issue before the Board that could result in a conflict, self-dealing or other circumstance if the director’s position as a ~~multiple~~director would be detrimental to us or result in a non-competitive, favored or unfair advantage to either the director or the director’s associates. In addition, our directors must disclose to the Chair of the Nominating and Corporate Governance Committee, or another member of the committee, any situation that involves or appears to involve a conflict of interest. This includes, for example, any financial interest of a director, an immediate family member of a director, or a business associate of a director in any transaction being considered by the Board, as well as any financial interest a director may have in an organization doing business with us.

Our Board’s delegation of authorities and reservation of powers requires our Board of Directors or the Nominating and Corporate Governance Committee to review and approve any investment, acquisition, financing or other transaction that we engage in directly with any current director or executive officer or any immediate family member or affiliate of a current director or executive officer.

Our Code of Conduct for employees requires that we and our employees seek to avoid any actual or apparent conflict between our business interests and the personal interests of our employees or their ~~base salary, as follows:~~relatives or associates. An employee who knows or suspects a violation of our Code of Conduct must raise the issue with the employee’s manager, another appropriate member of management, a member of our Human Resources division or our Compliance and Ethics division.

Under our Conflict of Interest Policy and Conflict of Interest Procedure for employees, an employee who has a potential conflict of interest must request review and approval of the conflict. Conflicts requiring review and approval include situations where the employee or a close relative of the employee has (1) a financial interest worth more than $100,000 in an entity that does business with or seeks to do business with us or (2) a financial interest worth more than $10,000 in such an entity combined with the ability to control or influence our relationship with the entity. In accordance with its charter, our Nominating and Corporate Governance Committee, in the case of potential conflicts involving our Chief Executive ~~Officer—five~~Officer, Chief Business Officer, Chief Operating Officer, Chief Financial Officer, Chief Risk Officer, General Counsel, Chief Audit Executive, or Chief Compliance Officer, must determine whether a conflict exists, any required steps to address the conflict, and whether or not to grant a waiver of the conflict under our Conflict of Interest Policy. In the case of conflicts involving other executive officers, our Chief Executive Officer makes the determination.

Our Employment of Relatives Practice prohibits, among other things, situations where an employee would exercise influence, control, or authority over the employee’s relative’s areas of responsibility or terms of employment, including but not limited to job responsibilities, performance ratings or compensation. Employees have an obligation to disclose the existence of any relation to another current employee prior to applying for any position or engaging in any other work situation that may give rise to prohibited influence, control or authority. We require our directors and executive officers, not less than annually, to describe to us any situation involving a transaction with us in which a director or executive officer could potentially have a personal interest that would require SEC disclosure.

Transactions with 5% Shareholders. Citigroup Inc. (“Citigroup”) beneficially owned more than 5% of the outstanding shares of our common stock as of December 29, 2006. Since January 1, 2006, we have engaged in securities and other financial instrument transactions in the ordinary course of business with Citigroup and its affiliates. We have extensive, multi-billion dollar relationships with Citigroup. Citigroupand/or its affiliates have at times ~~salary;~~engaged in the following types of transactions and activities: distributing our debt securities as a dealer; committing to sell or buy mortgage-related securities or mortgage loans as a dealer; delivering mortgage loans to us for purchase by our mortgage portfolio or for securitization into Fannie Mae mortgage-backed securities; issuing investments held in our liquid investment portfolio; and acting as a derivatives counterparty or a counterparty involved in other financial instrument or investment transactions with us.

A majority of the assets in the Fannie Mae Retirement Plan are managed by Alliance Capital Management L.P. and AllianceBernstein L.P. Alliance Capital. AllianceBernstein beneficially owned more than 5% of the outstanding shares of our common stock as of December 31, 2006, through their management of shares beneficially owned by AXA and its related entities. In addition, an affiliate of AXA has engaged in financial instrument transactions with us.

These transactions with our 5% shareholders did not require review, approval or ratification under any of our policies and procedures relating to transactions with related persons. All of these transactions were on substantially the same terms as those prevailing at the time for comparable transactions with unrelated third parties.

Transactions with The Duberstein Group. Kenneth Duberstein, a former director of Fannie Mae, is Chairman and Chief Executive Officer of The Duberstein Group, Inc., an independent strategic planning and consulting firm that has provided services to us since 1991. The Duberstein Group previously provided us consulting services related to legislative and regulatory issues, and associated matters. We entered into a new agreement with the Duberstein Group in June 2007 under which the firm provides us consulting services related to industry and trade issues. During 2006 the firm provided services on an annual fixed-fee basis of $375,000. The fees we paid to The Duberstein Group in 2006 are included in the “2006 Non-Employee Director Compensation Table” under “Proposal 1: Election of Directors—Directors’ Compensation.” Under our new agreement, we pay an annual fixed fee of $400,000.

Our entry into a new agreement with The Duberstein Group in 2007 was not considered by the Chair of our Nominating and Corporate Governance Committee, nor did it require approval by our Nominating and Corporate Governance Committee under our Board’s delegation of authorities and reservation of powers because, at the time we entered into the new agreement, Mr. Duberstein was no longer a Fannie Mae director. During 2006, our relationship with Mr. Duberstein’s firm was disclosed to the Chair of our Nominating and Corporate Governance Committee but did not require approval by our Nominating and Corporate Governance Committee under our Board’s delegation of authorities and reservation of powers because they had not yet been implemented.

Employment Relationships. Barbara Spector, the sister of Robert J. Levin, who is our Chief Business Officer, is a non-officer employee in our Enterprise Systems Operations division. The Enterprise Systems Operations division does not report, nor has it ever reported, to Mr. Levin. From January 1, 2006 through September 30, 2007, we paid or awarded Ms. Spector for her services in 2006 and 2007 approximately $264,000 in salary and cash bonuses. For 2006, she also received an aggregate of 171 shares of our common stock in the form of restricted stock that vest over four years. Dividends are paid on restricted common stock at the same rate as dividends on unrestricted common stock. She also receives benefits under our compensation and benefit plans

that are generally available to our employees, including our retirement plan and employee stock ownership plan.

Rebecca Senhauser, the wife of William Senhauser, our Chief Compliance Officer, served as a Senior Vice ~~Chairmen—three times salary;~~President in our Housing and ~~Executive Vice Presidents—two times salary.~~Community Development division until July 31, 2007. The Housing and Community Development division never reported to Mr. Senhauser. Mr. and Ms. Senhauser recused themselves from any matters that might have directly and significantly affected the other, including compensation and performance evaluation matters. From January 1, 2006 through July 31, 2007, we paid or awarded Ms. Senhauser for her services in 2006 and 2007 approximately $924,000 in salary and cash bonuses and an aggregate of 7,397 shares of our common stock in the form of restricted stock that vest over four years. In 2007, Ms. Senhauser was determined to be entitled to receive an aggregate of 3,965 shares under our performance share program, or PSP, for the unpaid three-year cycles that ended on December 31, 2005 and December 31, 2006, which amount will be paid in the future. Ms. Senhauser received benefits under our compensation and benefit plans that are generally available to our employees, including our retirement plan. As a member of senior management, she also received benefits under our compensation and benefit plans available to senior officers, ~~have three years~~including payment for tax and financial planning services, participation in the Supplemental Pension Plan and 2003 Supplemental Pension Plan and participation in our elective deferred compensation plan. In July 2007, Ms. Senhauser entered into a separation agreement with us under our management severance program. Under the terms of her separation agreement, Ms. Senhauser received early payment of approximately $154,000 in previously awarded but unpaid cash bonuses and gave up approximately $158,000 in previously awarded but unpaid cash bonuses as a result of her termination of employment. In addition, she became entitled to ~~attain~~early vesting of 8,125 shares of restricted stock and payment of 1,439 shares of common stock under our PSP; she forfeited 8,439 shares of restricted stock. Ms. Senhauser’s separation agreement provides that she will be entitled to receive a cash bonus for 2007 if cash bonuses are paid for 2007 under our annual incentive plan, based on corporate performance and prorated for her seven months of service during 2007. Under her separation agreement, Ms. Senhauser also received a severance payment of approximately $396,000, accelerated vesting of options to purchase 4,770 shares of our common stock, medical coverage worth up to an estimated $21,000 and up to $18,000 in outplacement services.

Other than the ~~required level~~terms of ~~ownership.~~Ms. Senhauser’s separation agreement, which were approved by the Board’s Nominating and Corporate Governance Committee, our employment relationship with and compensation of Mr. Levin’s sister and Mr. Senhauser’s wife did not require review or approval under any of our policies and procedures relating to transactions with related persons.

Communications with Directors

Interested parties wishing to communicate any concerns or questions about the company to the non- executive Chairman of the Board or to our non-management directors as a group may do so by electronic mail addressed to “board@fanniemae.com,” or by U.S. mail addressed to Fannie Mae Directors,c/o Office of the Corporate Secretary, Fannie Mae, Mail Stop 1H 2S/05, 3900 Wisconsin Avenue NW, Washington, DC20016-2892. Communications may be addressed to a specific director or directors, or to our independent directors as a group.

The Office of the Corporate Secretary is responsible for processing all communications to a director or directors. Communications that are commercial solicitations, ordinary course customer inquiries or complaints, incoherent, or obscene, will not be forwarded to the Board.

STOCK OWNERSHIP

Beneficial Ownership Table

The following table shows the beneficial ownership of ~~Fannie Mae~~our common stock by each of our current directors, director nominees and certain executive officers, and ~~holders~~all current directors, director nominees and executive officers as a group, as of ~~more than five percent~~October 22, 2007, unless otherwise indicated. As of ~~Fannie Mae common stock at April 1, 2003. At April 1, 2003, no~~that date, neither any director, director nominee, or executive officer, nor all directors, director nominees, and executive officers as a group, owned as much as ~~one percent~~1% of ~~Fannie Mae’s~~our outstanding common stock.

~~Notes to Beneficial Ownership Table~~

Amount and Nature of Beneficial Ownership⁽¹⁾
Stock Options

Exercisable and

Other Shares

Common Stock
Obtainable
Total
Beneficially
Within 60 Days
Common Stock
Owned Excluding
of October 22,
Beneficially
Name and Position
Stock Options 2007⁽²⁾ Owned

Michael J. Williams⁽¹⁸⁾
230,287 272,074 502,361
Executive Vice President and Chief Operating Officer
John K. Wulff⁽¹⁹⁾
1,887 1,000 2,887
Director
All directors and executive officers as a group (26 persons)⁽²⁰⁾
1,863,310 2,228,611 4,091,921
~~(1)~~
⁽¹⁾ Beneficial ownership is determined in accordance with the rules of the SEC for computing the number of shares of common stock beneficially owned by aeach person and the percentage ~~ownership of that person. The amounts include beneficial ownership~~owned. Holders of restricted ~~common~~ stock ~~with~~have no investment power but have sole voting power ~~(including~~over the shares and, accordingly, these shares are included in this table. Because holders of shares through our Employee Stock Ownership Plan, or ESOP, have sole voting power over the shares, these shares are also included in this table. Additionally, although holders of shares through our ESOP have sole voting power through the power to direct the ~~voting~~trustee of ~~restricted common stock~~the plan to vote their shares, to the extent some holders do not provide any direction as to how to vote their shares, the plan trustee may vote those shares in the same proportion as the trustee votes the shares for which the trustee has received direction. Holders of shares through ~~an escrow agent) and~~our ESOP have no investment power unless they are at least 55 years of age and have at least 10 years of participation in the ESOP. Holders of stock options have no investment or voting power over the shares issuable upon the exercise of the options until the options are exercised. Shares issuable upon the vesting of restricted stock units are not considered to be beneficially owned under applicable SEC rules and, accordingly, restricted stock units are not included in the amounts shown.
⁽²⁾ The shares included in this column are not currently outstanding but are issuable within 60 days of the Record Date, and consist of shares issuable upon the exercise of outstanding stock options held by our executive officers and other shares issuable within 60 days. These other shares consist of 70,797 shares issuable upon the exercise of outstanding stock options held by the spouse of one of our executive officers; 1,308 shares of deferred stock held by Mr. Williams, which he could obtain within 60 days in certain circumstances; and shares expected to be paid out to certain of our executive officers within 60 days in connection with our PSP in the following amounts: Mr. Levin—17,586 shares, Mr. Mudd—19,418 shares, Mr. Niculescu—10,722 shares, Mr. Williams—14,381 shares, all directors and officers as ~~follows: all nonmanagement directors, each 697 shares;~~a group—80,939 shares, including 2,526 shares we expect to pay to an executive officer’s spouse.
⁽³⁾ Mr. Ashley’s shares include 1,200 shares held by his spouse and 650 shares of restricted stock.
⁽⁴⁾ Mr. Beresford’s shares include 650 shares of restricted stock.
⁽⁵⁾ The reported amount does not include 111,111 restricted stock units held by Mr. Blakely.
⁽⁶⁾ Ms. Gaines’ shares consist of restricted stock.
⁽⁷⁾ Ms. Horn’s shares consist of restricted stock.
⁽⁸⁾ Mr. Levin’s shares consist of 258,287 shares held jointly with his spouse and 195,152 shares of restricted stock.
⁽⁹⁾ Ms. Macaskill’s shares include 650 shares of restricted stock.
⁽¹⁰⁾ Mr. Mudd’s shares include 297,026 shares of restricted stock. Mr. Mudd ~~10,000 shares;~~must continue to hold 35,301 of these shares after vesting, net of any shares withheld to pay withholding tax liability upon vesting, until his employment with Fannie Mae is terminated. The reported amount does not include 31,903 restricted stock units held by Mr. Mudd.
⁽¹¹⁾ Mr. Niculescu’s shares include 47,541 shares held jointly with his spouse, 234 shares held through our ESOP, and 86,354 shares of restricted stock.
⁽¹²⁾ Mr. Pickett’s shares include 650 shares of restricted stock.
⁽¹³⁾ Ms. Rahl’s shares include 200 shares held by her spouse and 650 shares of restricted stock.
⁽¹⁴⁾ Mr. Smith’s shares include 650 shares of restricted stock.
⁽¹⁵⁾ Ms. St. John left Fannie Mae in December 2006. Information about Ms. St. John’s holdings is based on an amended Form 4 filed by Ms. St. John on July 20, 2007 regarding her shares held as of December 15, 2006. Ms. St. John’s holdings include 869 shares held through our ESOP.
⁽¹⁶⁾ Mr. Swygert’s shares include 650 shares of restricted stock.
⁽¹⁷⁾ Ms. Wilkinson’s shares include 65,564 shares of restricted stock.
15


⁽¹⁸⁾		Mr. Williams’ shares include 77,061 shares held jointly with his spouse, 700 shares held by his daughter, 869 shares held through our ESOP and 151,501 shares of restricted stock.

⁽¹⁹⁾		Mr. Wulff’s shares include 650 shares of restricted stock.

⁽²⁰⁾		The amount of shares held by all directors and executive officers as a group ~~78,158 shares.~~

~~(2)~~

~~The amount~~ includes ~~1,200~~1,169,532 shares of restricted stock held by our directors and executive officers; 386,949 shares they hold jointly with others; 15,519 shares held by ~~Mr. Ashley’s spouse.~~

~~(3)~~

~~The amount includes 16,380 shares held jointly with Mr. Gerrity’s spouse.~~

~~(4)~~

~~The amount includes 24,000 shares held in trust for the benefit~~family members of ~~Mr. Howard’s spouse~~our directors and ~~161,783~~executive officers; 5,364 shares held by ~~the Timothy Howard Revocable Trust.~~

~~(5)~~

~~The amount includes 11,527 options held in separate trusts for the benefit of Mr. Howard’s children.~~

~~(6)~~

~~The amount includes 165,543~~our executive officers through our ESOP; and 711 shares held ~~jointly with Mr. Levin’s spouse and 24~~through our ESOP by an executive officer’s spouse. The shares ~~held by his child.~~

~~(7)~~

~~FMR Corp. has informed Fannie Mae that it owns 97,232,983~~in this table do not include 176,701 shares of ~~Fannie Mae~~restricted stock units over which the holders will not obtain voting rights or investment power until the restrictions lapse.

The following table shows the beneficial ownership of our common stock by each holder of more than 5% of our common stock as of the respective dates noted in the footnotes to the table, which is the most recent information provided.

Common Stock

5% Holders
Beneficially Owned Percent of Class

Capital Research and Management Company⁽¹⁾
167,555,250 17.2 %
333 South Hope Street
Los Angeles, CA 90071
Citigroup Inc.⁽²⁾
62,341,565 6.3 %
399 Park Avenue
New York, NY 10043
AXA⁽³⁾
52,669,044 5.4 %
25 Avenue Matignon
75008 Paris, France
⁽¹⁾ This information is based solely on information contained on a Schedule 13G/A filed with the SEC on February 12, 2007 by Capital Research and Management Company. According to the Schedule 13G/A, Capital Research and Management Company beneficially owned 167,555,250 shares of our common stock including 91,586,582 shares held by Fidelity Management & Research Company, 3,020,516 shares held by Fidelity Management Trust Company, and 2,344,190 shares owned by Fidelity International Limited. FMR Corp. hasas of December 29, 2006, with sole voting power for ~~5,134,411~~49,477,500 shares and sole dispositive power for ~~97,232,983~~all shares. ~~All~~Capital Research and Management Company’s shares include 3,674,050 shares from the assumed conversion of 3,470 shares of our convertible preferred stock.
⁽²⁾ This information is based solely on information contained in a Schedule 13G/A filed with the SEC on February 9, 2007 by Citigroup Inc. According to the Schedule 13G/A, Citigroup Inc. beneficially owns 62,341,565 shares of our common stock, with shared voting and dispositive power for all such shares.
⁽³⁾ This information ~~regarding FMR Corp.’s~~is based solely on information contained in a Schedule 13G/A filed with the SEC on February 13, 2007 by AXA, its subsidiary AXA Financial, Inc., and a group of entities that together as a group control AXA: AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, and AXA Courtage Assurance Mutuelle. According to the Schedule 13G/A, Alliance Capital Management L.P. and AllianceBernstein L.P., subsidiaries of AXA Financial, Inc., manage a majority of these shares as investment advisors. According to the Schedule 13G/A, (i) each of these entities other than AXA Financial, Inc. beneficially owns 52,669,044 shares of our common stock, ~~ownership is as~~with sole voting power for 38,027,229 shares, shared voting power for 4,288,975 shares, sole dispositive power for 52,643,476 shares and shared dispositive power for 25,568 shares; and (ii) AXA Financial, Inc. beneficially owns 52,550,491 shares of ~~December 31, 2002.~~our common stock, with sole voting power for 37,959,484 shares, shared voting power for 4,279,707 shares, sole dispositive power for 52,524,923 shares and shared dispositive power for 25,568 shares.
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 2006 or with respect to 2006 and on written representations from our directors and officers, we believe that all of our directors and officers filed all required reports and reported all transactions reportable during 2006, except that Ms. St. John, our former Chief Information Officer, reported one transaction late.

16
5

PROPOSAL 1: ELECTION OF DIRECTORS

Composition of the Board of Directors

Under the Charter Act, our Board of Directors consists of 18 directors, five of whom are appointed by the President of the United States, with the remainder elected by shareholders. The terms of office of the most recent Presidential appointees to Fannie Mae’s Board expired on May 25, 2004, and the President has not reappointed or replaced any of them. Pursuant to the Charter Act, those five Board positions will remain open unless and until the President names new appointees.

We engage a third-party executive search firm to identify potential director nominees. In addition, members of our Board of Directors and members of our executive management from time to time recommend a person for consideration as a potential director nominee. All potential director nominees are then evaluated by the third-party executive search firm, and we also engage outside counsel to help evaluate the independence of potential director nominees. All of the director nominees who joined the Board since the last annual meeting of shareholders were recommended to the Nominating and Corporate Governance Committee by the third-party executive search firm, except that (1) Dennis R. Beresford also was recommended by our Chief Financial Officer at the time and by a non-management member of the Audit Committee and (2) John C. Sites, Jr., was recommended by our Chief Business Officer.

The Nominating and Corporate Governance Committee recommends nominees for election as Fannie Mae directors to the Board for consideration. Guidelines for the consideration of all director candidates are contained in the Nominating and Corporate Governance Committee charter and in our Guidelines, and there is no separate policy governing the consideration of director candidates recommended by shareholders.

It is the policy of the Board that a substantial majority of the seated Fannie Mae directors will be independent, in accordance with the standards adopted by the Board. In addition, the Board, as a group, must be knowledgeable in business, finance, capital markets, accounting, risk management, public policy, mortgage lending, real estate, low-income housing, homebuilding, regulation of financial institutions, and any other areas that may be relevant to the safe and sound operation of Fannie Mae. The Nominating and Corporate Governance Committee seeks out Board members who possess:


	•	the highest personal values, judgment, and integrity;

	•	an understanding of the regulatory and policy environment in which Fannie Mae does its business; and

	•	diverse experience in the key business, financial, and other challenges that face a major American enterprise.

The Nominating and Corporate Governance Committee also considers whether a prospective candidate for the Board has the ability to attend meetings and fully participate in the activities of the Board, including whether the candidate’s service on outside boards will permit the candidate sufficient time to devote to responsibilities associated with being a Fannie Mae director.

In considering members of the Board for re-nomination, the Nominating and Corporate Governance Committee takes into consideration:


	•	a director’s previous contribution to the effective functioning of Fannie Mae;

	•	any change during the past year in the director’s principal area of responsibility with his or her company or in his or her employment;

	•	the director’s retirement during the past year from his or her principal area of responsibility with his or her company;

	•	whether the director continues to bring relevant experience to the Board;

	•	whether the director has the ability to attend meetings and fully participate in the activities of the Board;

~~The~~


	•	whether the director has developed any relationships with Fannie Mae or another organization, or other circumstances have arisen, that might make it inappropriate for the director to continue serving on the Board; and

	•	the director’s age and length of service on the Board.

Upon the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors has nominated the 12 persons ~~named~~identified below to stand for election at the 2007 annual ~~meeting to~~meeting. You may not vote for more than the number of nominees for election as directors. Under the Charter Act, each director is elected or appointed for a term ending on the date of our next shareholders’ meeting. In accordance with the Charter Act and our bylaws, each nominee for director who is elected will serve a ~~one-year~~ term ~~until~~ending on the date of the annual meeting of shareholders in ~~2004. The~~2008 and until the director’s successor is chosen and qualified or, if earlier, until the director dies, resigns, retires or is removed from office in accordance with the law.

Mr. Pickett has elected not to stand for re-election when his term expires at the annual meeting. As a result, there will be six vacancies on the Board of Directors ~~has~~after the meeting. There are no ~~reason~~nominees for five of these vacancies because, as described above, only the U.S. President can fill these vacancies. There is one fewer nominee for director than the number of directors to ~~believe~~be elected by shareholders under the Charter Act because we are still engaged in the process of identifying an appropriate and qualified candidate. If we find a qualified individual with appropriate skills to fill the vacancy, then we anticipate that, ~~any nominee~~following the Nominating and Corporate Governance Committee’s recommendation of the candidate to serve as a director, the Board will appoint the person to fill the vacancy. The shareholders will not elect the candidate because, under the Charter Act, a vacancy on the Board may be filled by the affirmative vote of the majority of the directors then serving as directors. A director who is elected by the Board to fill a vacancy on the Board will serve as a director until the next annual meeting of shareholders and until the director’s successor is chosen and qualified or, if earlier until the director dies, resigns, retires or is removed from office in accordance with the law. Any shareholder who wishes to submit a candidate orfor consideration by the Nominating and Corporate Governance Committee should submit written notice as described below under “Shareholder Proposals and Director Nominations for 2008.”

Because the number of director nominees does not exceed the number of directors to be elected, each nominee for director will be ~~unable~~elected if the votes castFOR the director exceed the votes castAGAINSTthe director. In addition, although our Board consists of 18 directors under the Charter Act, proxies cannot be voted for a greater number of persons than the 12 nominees named below under “Nominees for Election.”

Each director nominee has consented to ~~serve. However,~~being named in this proxy statement and to serve if elected. If any nominee should become unwilling or unable to serve as a director, the proxy holders, in the absence of contrary instruction, will vote the proxies for the election of such persons as ~~shall be designated by~~ the Board of ~~Directors. As~~Directors designates. In addition, each director nominee has submitted a ~~result of~~contingent irrevocable resignation that will become effective if the ~~departure from the Board of Mr. Stephen Friedman,~~nominee does not receive a ~~vacancy currently exists on the Boardof Directors. The Board intends to fill this vacancy upon its selection of a qualified candidate to succeed Mr. Friedman. A plurality~~majority of the votes cast atand, based on the ~~annual meeting is required for the election of each nominee for director.~~
~~All nominees have consented to being named in this proxy statement and to serve if elected.~~
~~Pursuant to the Fannie Mae Charter Act, the President~~recommendation of the ~~United States has the authority to appoint five additional directors for terms ending on the date~~Nominating and Corporate Governance Committee of the ~~2004 annual meeting.~~
Board, the Board decides to accept the nominee’s resignation.

Nominees for Election

The ~~nominees have~~following section presents information provided by the ~~following information~~nominees about their principal occupation, business experience, directorships, and other matters.

The Board of Directors recommends

that shareholders vote~~for~~FOR each of the nominees.


Name and Age		Position, Principal Occupation, Business Experience and Directorships


Stephen B. Ashley, ~~age 63, has been~~67		Chairman and Chief Executive Officer The Ashley Group

		• Chairman and Chief Executive Officer of The Ashley Group, a group of commercial and multifamily real estate, brokerage and investment companies, since January 1997. The Ashley Group is comprised of S.B. Ashley Management Corporation, S.B. Ashley Brokerage Corporation, and S.B. Ashley & Associates Venture Company, LLC. He also serves as a director of The Genesee Corporation and Exeter Fund, Inc. In addition, Mr. Ashley serves as a trustee of Cornell University. He is a past President of the Mortgage Bankers Association of America. Mr. Ashley has been a Fannie Mae director since 1995. companies—1995 to present

		~~Kenneth M. Duberstein~~~~, age 58, has been~~• Chairman and Chief Executive Officer of ~~The Duberstein~~Sibley Mortgage Corporation, a commercial, multifamily and single-family mortgage banking firm, and Sibley Real Estate Services, Inc.—1991 to 1995

		• Director of Fannie Mae since May 1995 and Chairman of Board since December 2004

		• Other Directorships: Manning & Napier Fund, Inc.

		• Other Activities: Mortgage Bankers Association of America (past president)

Dennis R. Beresford, 68		Ernst & Young Executive Professor of Accounting J.M. Tull School of Accounting, Terry College of Business, University of Georgia

		• Ernst & Young Executive Professor of Accounting, J.M. Tull School of Accounting, Terry College of Business, University of Georgia—1997 to present

		• Chairman of the Financial Accounting Standards Board, or FASB, the designated organization in the private sector for establishing standards of financial accounting and reporting in the U.S.—1987 to 1997

		• Ernst & Young LLP (including ten years as a Senior Partner and National Director of Accounting)—1961 to 1986

		• Director of Fannie Mae since May 2006

		• Other Directorships: Kimberly-Clark Corporation (Chair, Audit Committee) and Legg Mason, Inc. (Chair, Audit Committee)

		• Other Activities: Member, SEC Advisory Committee on Improvements to Financial Reporting; certified public accountant

Louis J. Freeh, 57		President Freeh Group ~~Inc.~~International, LLC

		• President of Freeh Group International, LLC, a practice of former federal judges and former senior FBI leaders who provide legal, governance, investigative, litigation, and risk management services—January 2006 to present

		• General Counsel, Corporate Secretary and Ethics Officer of MBNA Corporation, as well as Vice Chairman of MBNA America Bank N.A.—2001 to January 2006

		• Director of the Federal Bureau of Investigation (FBI)—1993 to 2001

		• U.S. District Judge—Southern District of New York—1991 to 1993

		• Director of Fannie Mae since May 2007

		• Other Directorships: Bristol-Myers Squibb Company (Member, Audit Committee, and Member, Directors and Corporate Governance Committee)


Brenda J. Gaines, ~~an independent strategic planning~~58		Retired

		• Diners Club North America, a subsidiary of Citigroup (President and ~~consulting company, since July 1989. He served as~~Chief Executive Officer—October 2002 until her retirement in April 2004), (President—February 1999 to September 2002), and (Various other positions—1988 to February 1999)

		• Deputy Chief of Staff tofor the ~~President~~Mayor of the ~~United States from 1988~~City of Chicago—1985 to ~~1989. Mr. Duberstein also serves as a director~~1987

		• Chicago Commissioner of ~~The Boeing Company, ConocoPhillips, Inc., Fleming Companies, Inc., and St. Paul Companies, Inc. In addition, he serves as a member~~Housing—1983 to 1985

		• Director of ~~the Board of Governors of the National Association of Securities Dealers, Inc. and the American Stock Exchange. Mr. Duberstein has been a~~ Fannie Mae ~~director~~ since ~~1998.~~ September 2006


		• Other Directorships: Office Depot (Chair, Audit Committee, and Member, Corporate Governance and Nominating Committee); NICOR, Inc. (Member, Corporate Governance Committee); and Tenet Healthcare Corporation (Member, Audit Committee, and Member, Compensation Committee)

~~Thomas P. Gerrity~~Karen N. Horn, Ph.D., ~~age 61, has been Professor~~64		Senior Managing Director Brock Capital Group LLC

		• Senior Managing Director of ~~Management since 1990,~~Brock Capital Group LLC, an advisory and investment firm—2003 to present

		• Managing Director, ~~Wharton Electronic Business Initiative since July~~ Private Client Services of Marsh Inc., a subsidiary of Marsh & McLennan Companies—1999 until retirement in 2003

		• Senior Managing Director and ~~Dean from June 1990~~Head of International Private Banking of Bankers Trust Company—1996 to ~~July~~ 1999 of The Wharton School of the University of Pennsylvania, an educational institution. He was President of CSC Consulting and Vice President of Computer Sciences Corporation from May 1989 to June 1990 and

		• Chairman and Chief Executive Officer of ~~Index Group, Inc., from March 1969~~BankOne, Cleveland—1987 to April 1989. Mr. Gerrity also serves as a director of CVS Corporation, Internet Capital Group, Inc., Knight-Ridder, Inc., Sunoco, Inc., and Morgan Stanley Institutional Funds. Mr. Gerrity has been a Fannie Mae director since 1991. 1996

		• President of Federal Reserve Bank of Cleveland—1982 to 1987

		~~Timothy Howard~~~~, age 54, has been nominated to serve as a Vice Chairman~~• Director of the Board. Mr. Howard will continue to serve as our Chief Financial Officer. Mr. Howard has been Executive Vice President and Chief Financial Officer since February 1990. Mr. Howard became a member of the Office of the Chairman in November 2000. He joined Fannie Mae ~~in 1982. Mr. Howard also serves on the Board of Directors of CarrAmerica Realty Corporation.~~ since September 2006

		• Other Directorships: Eli Lilly and Company (Chair, Compensation Committee, and Member, Directors and Corporate Governance Committee); Simon Property Group, Inc. (Chair, Governance Committee, and Member, Compensation Committee); and all T. Rowe Price funds and trusts

		~~Ann McLaughlin Korologos~~~~, age 61, has been~~• Other Activities: Vice ~~Chairman, RAND Board~~President of Trustees, a nonprofit institution, since May 2001. Ms. McLaughlin Korologos has been Chairman Emeritus, since August 2000, Chairman from October 1996 to August 2000, and Vice Chairman from August 1993 to September 1996, of the Aspen Institute, a nonprofit organization. Ms. McLaughlin Korologos serves as Senior Advisor to Benedetto, Gartland and Company, Inc., an investment banking firm. Ms. McLaughlin Korologos also serves as a director of AMR Corporation (and its subsidiary, American Airlines), Harman International Industries, Inc., Host Marriott Corporation, Kellogg Company, Microsoft Corporation, and Vulcan Materials Company. Ms. McLaughlin Korologos has been a Fannie Mae director since 1994. U.S. Russia Investment Fund (a presidential appointment)

Bridget A. Macaskill, 59		Principal BAM Consulting LLC

		~~Frederic V. Malek~~~~, age 66, has been Chairman~~• Principal of ~~Thayer Capital Partners, a private equity investment~~BAM Consulting LLC, an independent financial services consulting firm, ~~since 1993. He served as Co-Chairman of CB Commercial Real Estate Group from 1989~~which she founded—2003 to 1996. He also served as President of Northwest Airlines, Inc., from 1989 to 1990 and Vice Chairman from 1990 to 1992. Mr. Malek also serves as a director of Automatic Data Processing Corp., FPL Group Inc., Northwest Airlines, Inc., Aegis Communications Group, Inc., American Management Systems, Inc., CB Richard Ellis, Manor Care, Inc., and UBS Global Asset Management (US), Inc. Mr. Malek has been a Fannie Mae director since 2002.

		~~Donald B. Marron~~, age 68, has been Chairman of UBS America, a non-executive position, since January 2001. He has also been Chairman of Lightyear Capital, a private equity investment firm, since November 2000. Mr. Marron was President of Paine Webber Group Inc. from 1977, Chief Executive Officer thereof from 1980, and Chairman and Chief Executive Officer thereof from 1981 until its merger with a subsidiary of UBS AG in November 2000, and Chief Executive Officer of UBS PaineWebber Inc. (formerly PaineWebber Incorporated), until January 2001. He is also a director of Shinsei Bank. He is a former member of the Board of Governers of the National Association of Securities Dealers, Inc., a former director of the New York Stock Exchange, and a former governor of the Securities Industries Association. Mr. Marron also is a trustee of the Center for Strategic and International Studies and Chairman of the Center for the Study of the Presidency. He is a member of the Board of Overseers and Managers, Memorial Sloan-Kettering Cancer Center, and Vice Chairman of the Board of Trustees of the Museum of Modern Art. Mr. Marron has been a Fannie Mae director since 2001. present

		• Oppenheimer Funds, Inc. (Chairman of the Board—2000 to 2001), (Chief Executive Officer—1995 to 2001), and (President—1991 to 2000)

		• Director of Fannie Mae since December 2005

		• Other Directorships: Prudential plc (Chair, Remuneration Committee and Member, Nomination Committee) and Scottish & Newcastle plc.

		• Trusteeships: College Retirement Equities Fund (CREF) and the TIAA-CREF Funds


Daniel H. Mudd, ~~age 44, has been Vice~~49		President and Chief Executive Officer Fannie Mae

		• Fannie Mae (President and Chief Executive Officer—June 2005 to present), (Vice Chairman of Board of Directors and interim Chief Executive Officer—December 2004 to June 2005), (Vice Chairman and Chief Operating Officer—February 2000 to December 2004)

		• Fannie Mae Foundation (Chairman of the Board since June 2005), (Interim Chairman of the ~~Board and Chief Operating Officer of Fannie Mae since February 2000. Prior~~Board—December 2004 to ~~his employment with Fannie Mae, Mr. Mudd was~~June 2005), (Vice Chairman—September 2003 to December 2004)

		• President and Chief Executive Officer of GE Capital, Japan, a diversified financial services company and a ~~wholly-owned~~wholly owned subsidiary of the General Electric ~~Company, from~~ Company—April 1999 to February ~~2000. He also served as~~2000

		• President of GE Capital, Asia ~~Pacific, from~~ Pacific—May 1996 to June ~~1999. Mr. Mudd also serves as a director of Ryder System, Inc. Mr. Mudd has been a Fannie Mae director since 2000.~~ 1999

		• Director of Fannie Mae since February 2000

		~~Anne M. Mulcahy~~, age 50, has been Chairman of Xerox Corporation since January 2002 and Chief Executive Officer since August 2001. The Xerox Corporation is a global company serving document processing markets with headquarters in Stamford, Connecticut. Ms. Mulcahy served as President and Chief Operating Officer of Xerox from May 2000 through July 2001. She was Executive Vice President; President, General Markets Operations, from January 1999 to May 2000, and Senior Vice President, Chief Staff Officer from March 1997 to January 1999. Ms. Mulcahy also serves as a director of Target Corporation. Ms. Mulcahy has been a Fannie Mae director since 2000. • Other Directorships: Fortress Investment Group LLC

Leslie Rahl, 57		President Capital Market Risk Advisors, Inc.

		• President and Founder of Capital Market Risk Advisors, Inc., a financial advisory firm specializing in risk management, hedge funds and capital market strategy—1994 to present

		• Citibank (Various positions—1972 to 1991, including nine years as Vice President and Division Head, Derivatives Group—North America)

		• Director of Fannie Mae since February 2004

		• Other Directorships: Canadian Imperial Bank of Commerce (CIBC) (Member, Risk Management Committee); the International Association of Financial Engineers; and the Fischer Black Memorial Foundation

		• Other Activities: International Swaps Dealers Association (former director)

~~Joe K. Pickett~~John C. Sites, Jr., ~~age 57, retired from HomeSide International, Inc. on June 30, 2001, where he had served as Chairman from February 1996. He also served as Chief Executive Officer~~55		Consultant Wexford Capital, LLC General Partner Rock Creek Partners II, Ltd

		• Consultant to Wexford Capital, LLC, an SEC registered investment advisor—September 2006 to present.

		• General Partner of ~~HomeSide International, Inc. from February~~Rock Creek Partners II, Ltd, a private equity fund of Rock Creek Capital Advisors, an investment and advisory firm—October 1997 to present

		• General Partner of Daystar Special Situations Fund, a private equity fund—January 1996 to ~~February 2001. HomeSide International was~~August 2006

		• Bear, Stearns and Co., Inc. (Various positions—1981 to 1995, including Executive Vice President & Member of the ~~parent~~Board of ~~HomeSide Lending, Inc.~~Directors)

		• Director of Fannie Mae since October 2007


Greg C. Smith, ~~a mortgage banking company that was formerly known as BancBoston Mortgage Corporation. HomeSide International was a wholly-owned subsidiary of National Australia Bank~~56		Retired

		• Ford Motor Company (Vice Chairman—October 2005 until retirement in ~~2001. Mr. Pickett also served as~~March 2006), (Executive Vice President and President, The Americas,—2004 to 2005), and (Group Vice President—2002 to 2004)

		• Ford Motor Credit Company: Chairman and Chief Executive ~~Officer~~Officer—2002 to 2004; Chief Operating Officer—2001 to 2002; President, Ford Credit North America—1997 to 2001

		• Director of ~~HomeSide Lending from~~Fannie Mae since April ~~1990 to April 1999. Mr. Pickett is a past~~2005

		• Other Directorships: Penske Corp

		• Other Activities: American Financial Services Association (former Chairman)

H. Patrick Swygert, 64		President Howard University

		• President of ~~the Mortgage Bankers Association~~Howard University—1995 to present. Mr. Swygert has announced that he will retire as President of ~~America. Mr. Pickett has been a Fannie Mae director since 1996.~~ Howard University in June 2008


~~Franklin D. Raines~~~~, age 54, has been Chairman of the Board and Chief Executive Officer~~		• Director of Fannie Mae since January 1999 and was Chairman of the Board and Chief Executive Officer—Designate of Fannie Mae from May 1998 to December 1998. Prior to his current position with Fannie Mae, Mr. Raines was Director of the United States Office of Management and Budget from September 1996 to May 1998. Previously, Mr. Raines had been Vice Chairman of the Board of Fannie Mae from September 1991 to September 1996. He joined Fannie Mae in July 1991 as Vice Chairman—Designate. Before joining Fannie Mae, Mr. Raines was with Lazard Freres & Co., an investment banking firm, which he joined in 1979 and was a General Partner from January 1985 to December 1990 and a Limited Partner from January 1991 to June 1991. Mr. Raines also serves as a director of AOL Time Warner, PepsiCo, Inc., and Pfizer Inc. Mr. Raines was a Fannie Mae director from 1991 to 1996 and has been a Fannie Mae director since 1998. 2000

		~~H. Patrick Swygert~~~~, age 60, has been President of Howard University, a Washington, D.C. educational institution, since 1995. He also serves as a director of~~• Other Directorships: Hartford Financial Services Group, Inc. (Chairman, Nominating and Corporate Governance Committee; Member, Compensation and Personnel Committee; Member, Executive Committee) and United Technologies ~~Corporation. In addition, Mr. Swygert is a member of Brown v. Board of Education National Commemoration Commission; chairman of the Historically Black Colleges~~Corporation (Member, Audit Committee, and ~~Universities Capital Finance Advisory Board, U.S. Department of Education; and member, National Security Agency Advisory Board. Mr. Swygert has been a Fannie Mae director since 2000.~~

~~Directors Appointed by the President of the United States~~

Fannie Mae directors appointed by President George W. Bush have provided the following information about their principal occupation, business experience, and other matters. Each director’s term ends on the date of the annual meeting, May 20, 2003.

		~~Victor H. Ashe~~, age 58, has been Mayor of Knoxville, Tennessee since 1988. Mr. Ashe is a member of the U.S. Conference of Mayors Executive Committee. He is a past President of the U.S. Conference of Mayors. Mr. Ashe has been a Fannie Mae director since 2001. Member, Committee on Nominations & Governance)

		• Other Activities: Central Intelligence Agency External Advisory Board (member)

		~~Molly H. Bordonaro~~John K. Wulff, age 34, has been a principal at the Gallatin Group, a strategic consulting and public affairs firm, since May 2002. She was an associate at Norris, Beggs & Simpson from 1999 to 2002 and was owner and President of The Bordonaro Group from 1995 to 1999. Ms. Bordonaro has been a Fannie Mae director since 2001.

59		~~William R. Harvey~~~~, age 62, has been the President of Hampton University, a private educational institution, since 1978. He is owner~~Chairman of the ~~Pepsi-Cola Bottling Company of Houghton, Michigan. Mr. Harvey has been a Fannie Mae director since 2001.~~ Board Hercules Incorporated

		• Hercules Incorporated, a manufacturer and supplier of specialty chemical products (Chairman of the Board—December 2003 to present), (Director—July 2003 to December 2003), and (Interim Chairman—October 2003 to December 2003)

		~~Manuel J. Justiz~~, age 54, has been Dean of the College of Education at the University of Texas at Austin, an educational institution, since 1990 and holds the A.M. Aikin Regents Chair in Education Leadership and the Lee Hage Jamail Regents Chair in Education. In addition, he serves as a director of Voyager Expanded Learning. Mr. Justiz has been a Fannie Mae director since 2001. • Financial Accounting Standards Board (FASB) (member) from July 2001 until June 2003

		• Chief Financial Officer of Union Carbide Corporation, a chemicals and polymers company from 1996 until 2001

		~~Taylor C. Segue, III~~~~, age 48, has been with the Michigan law firm of Howard and Howard since June 2002. He served as Interim~~• Director of the Detroit Housing Authority from August 2002 to December 2002 and was a partner at Butzel, Long, P.C. from February 1999 to May 2002. Mr. Segue was a partner at Segue, Fair, Adams, & Pope, P.L.C. from 1990 to 1999. Mr. Segue has been a Fannie Mae ~~director~~ since ~~2001.~~ December 2004

		• Other Directorships: Hercules Incorporated (Chairman of the Board); Sunoco, Inc. (Member, Audit Committee, and Member, Public Affairs Committee); Celanese Corporation (Chair, Compensation Committee); and Moody’s Corporation (Chair, Audit Committee and Member, Governance and Compensation Committee)

Meetings of the Board of Directors

The Board of Directors met ~~eight~~22 times during ~~2002. Each director~~2006. During 2006, all of our current directors attended at least ~~75 percent~~75% of the total number of meetings of the Board of Directors and Board committees on which he or she served.

We did not hold an annual meeting of shareholders in 2005 or 2006. Following our last annual meeting of shareholders in 2004, we adopted a policy stating that all directors are expected to attend the annual meeting of shareholders in person.

Committees of the Board of Directors

The standing committees of the Board are:


	•	Audit Committee;

	•	Compensation Committee;

	•	Compliance Committee;

	•	Executive Committee;

	•	Housing and Community Finance Committee;

	•	Nominating and Corporate Governance Committee;

	•	Risk Policy and Capital Committee; and

	•	Technology and Operations Committee.

All of ~~Directors are:~~the committees (other than the Executive Committee) consist entirely of independent directors. In addition, these committees are governed by written charters, copies of which are posted on our Web site,www.fanniemae.com, under “Corporate Governance,” and are available in print free of charge to any shareholder upon request.

TheAudit Committeeoversees:


	•	our accounting, reporting, and financial practices, including the integrity of our financial statements and internal control over financial reporting;

	•	our compliance with legal and regulatory requirements (in coordination with the Compliance Committee);

	•	the qualifications and independence of the our outside auditors; and

	•	the performance of our internal audit function and our outside auditor.

The Audit Committee met 19 times in 2006.

TheCompensation Committeedischarges the responsibilities of the Board relating to compensation of our executives and among other things:


	•	oversees compensation policies and plans for officers and other management group employees and general compensation plans applicable to all employees, to maintain adherence to our philosophy, competitive position, and obligations under the Charter Act;

	•	makes recommendations to the Board with respect to our incentive-compensation plans and stock-based plans that are subject to Board approval;

	•	reviews and approves corporate goals and objectives relevant to CEO compensation, evaluates the CEO’s performance in light of those goals and objectives, and recommends to the independent members of the Board the CEO’s compensation level based on this evaluation, consistent with our compensation philosophy;

	•	recommends to the Board corporate goals for measurement of performance and approving achievement against those goals;

	•	recommends to the Board the compensation of executive vice presidents, consistent with the corporation’s compensation philosophy; and

	•	approves the compensation of senior vice presidents, consistent with the corporation’s compensation philosophy, including senior vice presidents who may be “executive officers” as defined inRule 3b-7 under the Securities Exchange Act of 1934. With respect to the compensation of the Chief Audit Executive and Chief Compliance Officer, the Compensation Committee takes into account the recommendation of the Audit Committee and the Compliance Committee, respectively.

The Compensation Committee met 16 times in 2006.

TheCompliance Committeeboth monitors and coordinates our compliance with the provisions of the Consent Order entered into between the Office of Federal Housing Enterprise Oversight (“OFHEO”) and us on May 23, 2006 (the “OFHEO Consent Order”), and oversees our compliance with legal and regulatory requirements. The Compliance Committee met 7 times in 2006.

TheExecutive Committee~~, which~~ has all the authority of the Board during the ~~interim~~ periods between Board meetings, except for certain specified powers ~~that are stated~~listed in our bylaws. The Executive Committee did not meet in 2006.

TheHousing and Community Finance Committeeoversees our single-family mortgage, capital markets and housing and community development divisions, as well as the ~~Fannie Mae bylaws.~~
company’s contribution to affordable housing and community development. In addition, the Housing and Community Finance Committee monitors public policy surrounding housing issues. The ~~Assets~~Housing and ~~Liabilities Policy~~Community Finance Committee~~, which assists the Board~~ met 15 times in ~~its oversight of management’s interest rate risk, credit risk, and capital management activities by:~~
~~developing an in-depth and specialized knowledge on matters relating to assets and liabilities management; and~~2006.
reviewing management’s policy proposals and performance, and making recommendations and reports to the Board, on matters relating to Fannie Mae’s assets and liabilities. In this capacity, the Assets and Liabilities Policy Committee, among other things, reviews: credit and interest rate risk management policies and performance; investment guidelines for the liquidity portfolio and management’s compliance with those guidelines; the use and issuance of derivative securities; and dividend payments.
~~The Audit Committee~~~~, which oversees:~~
~~the accounting, reporting and financial practices of Fannie Mae, including the integrity of Fannie Mae’s financial statements;~~
~~the creation and administration of financial controls;~~
~~Fannie Mae’s compliance with legal and regulatory requirements;~~
~~outside auditors’ qualifications and independence; and~~
~~the performance of Fannie Mae’s internal audit function and Fannie Mae’s outside auditor.~~
The~~The Compensation Committee, which discharges the responsibilities of the Board relating to~~compensation of Fannie Mae’s executives and oversees and advises the Board on the adoption of policies that govern Fannie Mae’s annual compensation and stock ownership plans. The Compensation Committee, among other things:
~~ensures that compensation programs reflect Fannie Mae’s pay for performance philosophy and that stock compensation aligns the interests of employees and directors with those of shareholders;~~
~~approves the compensation of Fannie Mae’s senior officers;~~
~~reviews and advises Fannie Mae on the process used for gathering information on the compensation paid by other similar businesses;~~
~~reviews Fannie Mae’s succession plans relating to the Chief Executive Officer and other senior officers; and~~
~~reviews periodic reports from management on matters relating to personnel appointments and practices.~~
~~The~~ Nominating and Corporate Governance Committee:
proposes to the board lists of names for consideration as nominees for election by the shareholders as Fannie Mae directors and develops and ~~monitors implementation of Fannie Mae’s~~recommends to the Board corporate governance guidelines and ~~key practices; conducts periodic benchmarking of corporate governance practices and as needed, recommends appropriate changes; and otherwise~~ plays a leadership role in shaping ~~Fannie Mae’s~~the corporation’s corporate ~~governance; and~~
identifies individuals qualified to become members of the Board; recommends to the Board the slate of director nominees to be elected by shareholders; and recommends directors to be elected by the Board to fill any vacancies.
governance. The Nominating and Corporate Governance Committee ~~will consider nominees recommended by shareholders. Shareholders may submit~~oversees the evaluation of the Board and its committees, including evaluating the adequacy and appropriateness of the content, format and distribution of the written ~~recommendations for nominees~~information, and evaluating reports and other material provided to the ~~Office of~~Board. The Nominating and Corporate Governance Committee is also responsible for recommending compensation for non-management directors on the ~~Secretary of Fannie Mae only in accordance with Section 4.19 of our bylaws.~~
~~The Technology Committee~~~~, which reviews and makes recommendations~~Board to the Board ~~concerning~~of Directors and reviews non-management director compensation once a year. The Nominating and Corporate Governance Committee met 9 times in 2006.

TheRisk Policy and Capital Committeeassists the Board in overseeing our capital management and risk management, including overseeing the management of credit risk, market risk, liquidity risk, and operational risk. The Risk Policy and Capital Committee met 10 times in 2006.

TheTechnology and Operations Committeeprovides oversight of Fannie Mae’s technology ~~plans, uses, designs, budget,~~ and ~~implementation,~~operations environment, including our infrastructure, organization, and ~~receives reports on Fannie Mae’s progress~~key controls. The Technology and Operations Committee met 5 times in ~~carrying out these activities.~~
11
2006.

The following table shows the current membership of each committee:

Board Committee

Housing

Nominating

Risk

Technology

and

Policy and

and

Board

Independent

Community

Corporate

Capital

Operations

Member

Director

Audit

Compensation

Compliance

Executive

Finance

Governance

Committee

Stephen B. Ashley

Chair

Dennis R. Beresford*

Chair

Louis J. Freeh

Brenda J. Gaines

Chair

Karen N. Horn*

Bridget A. Macaskill

Chair

Daniel H. Mudd

Joe K. Pickett

Leslie Rahl

Chair

John C. Sites, Jr.

Greg C. Smith*

Chair

H. Patrick Swygert

Chair

John K. Wulff*

Chair


^*		The Board has determined that Mr. Beresford, Ms. Horn, Mr. Smith and Mr. Wulff have the requisite experience to qualify as “audit committee financial experts” under the rules and regulations of the SEC and has designated them as such, and they are independent as independence for audit committee members is defined under the NYSE listing standards.

Directors’ Compensation

Annual compensation for our non-management directors for 2006 consisted of cash compensation and equity compensation, in the ~~number~~form of ~~meetings held by each committee during 2002:~~restricted stock awards. Each of these components is described in more detail below. The total 2006 compensation for our non-management directors is shown in the table below. Mr. Mudd, who is our only director who is an employee of Fannie Mae, does not receive the benefits provided to our non-management directors other than those provided under the Matching Gifts Program, which is available to every Fannie Mae employee, and those available under the Director’s Charitable Award Program.

2006 Non-Employee Director Compensation Table

Fees Earned or
Stock
Option
All Other

Name
Paid in Cash ($) Awards ($)⁽¹⁾ Awards ($)⁽²⁾ Compensation ($)⁽³⁾ Total ($)

Stephen B. Ashley $ 500,000 $ 64,770 $ 17,516 $ 16,689 $ 598,975
Dennis R. Beresford 99,950 22,053 N/A 35,691 157,694
Kenneth M. Duberstein⁽⁴⁾
102,600 64,770 17,516 410,335 595,221
Brenda J. Gaines 35,667 5,845 N/A 17,818 59,330
Thomas P. Gerrity 110,533 64,770 17,516 15,821 208,640
Karen N. Horn 38,667 5,845 N/A 24,553 69,065
Ann M. Korologos 51,350 — 42,278 14,217 107,846
Bridget A. Macaskill 139,733 37,347 N/A 18,797 195,877
Donald B. Marron 45,917 — 42,278 53,396 141,591
Joe K. Pickett 122,533 64,770 17,516 36,052 240,871
Leslie Rahl 113,700 65,945 17,516 17,770 214,931
Greg C. Smith 166,467 33,058 2,483 17,818 219,826
H. Patrick Swygert 113,900 64,770 17,516 34,432 230,617
John K. Wulff 170,600 53,364 9,038 22,005 255,006
⁽¹⁾ These amounts represent the dollar amounts we recognized for financial statement reporting purposes with respect to 2006 for the fair value of restricted stock granted during 2006 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 value of the restricted stock awards is calculated as the average of the high and low trading price of our common stock on the date of grant. During 2006, three directors received restricted stock grants with the SFAS 123R grant date fair values shown upon joining our Board: Mr. Beresford, $36,033; Ms. Gaines, $26,162; and Ms. Horn, $26,162.
Ms. Korologos and Mr. Marron each retired from our Board during 2006 and, as a result, forfeited shares of unvested restricted common stock. The amounts shown do not reflect the reversal of previously recognized compensation cost for the forfeited shares. The amounts shown also do not reflect the impact of Mr. Gerrity’s forfeiture of 650 shares of restricted stock upon his resignation from our Board of Directors in December 2006.
As of December 31, 2006, our directors held the following number of shares of restricted stock: Mr. Ashley, Mr. Beresford, Mr. Duberstein, Ms. Macaskill, Mr. Pickett, Ms. Rahl, Mr. Smith, Mr. Swygert, and Mr. Wulff, 650 shares each; Ms. Gaines and Ms. Horn, 487 shares each; and Mr. Gerrity, Ms. Korologos, and Mr. Marron, 0 shares.
⁽²⁾ These amounts represent the dollar amounts we recognized for financial statement reporting purposes with respect to 2006 for the fair value of stock option awards granted during 2005 and in prior years in accordance with SFAS 123R. No director has received a stock option award since 2005. 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 onForm 10-K for the year ended December 31, 2006. Mr. Beresford, Ms. Gaines, Ms. Horn, and Ms. Macaskill have never been awarded Fannie Mae stock options.
As of December 31, 2006, each of our directors held options to purchase the following number of shares of common stock, with exercise prices ranging from $42.69 to $79.22 per share and expiration dates ranging from 2007 to 2015: Mr. Ashley, 26,000 shares; Mr. Beresford, Ms. Gaines, Ms. Horn, and Ms. Macaskill, 0 shares; Mr. Duberstein and Mr. Gerrity, 28,000 shares; Mr. Marron, 4,000 shares; Mr. Pickett and Ms. Korologos, 32,000 shares; Ms. Rahl, 5,333 shares; Mr. Smith, 666 shares; Mr. Swygert, 11,833 shares; and Mr. Wulff, 2,000 shares.
⁽³⁾ “All Other Compensation” consists of our estimated incremental cost of providing Board members benefits under our Director’s Charitable Award Program, which is discussed in greater detail below. 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 2006 and (2) the time value during 2006 of amounts vested for that director in prior years.

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Director

Executive

Audit

Compensation

Nominating and Corporate Governance

Assets and Liabilities Policy

Technology
Mr. Ashe

X

X
Mr. Ashley

X

X
Ms. Bordonaro

X

X
Mr. Duberstein

X

Chair

X
Mr. Gerrity

X

Chair

X

Mr. Harvey

X

X
Mr. Justiz

X

X
Ms. McLaughlin Korologos

X

X

Chair

Mr. Malek

X

X

Mr. Marron

X

X

Ms. Mulcahy

X

X

Chair

Mr. Pickett

X

X

Chair
Mr. Raines

Chair

Mr. Segue

X

X

Mr. Swygert

X

2002 Meetings

0

7

4

7

5

2
~~Directors’ Compensation~~
~~Retainer Fees~~
~~During 2002,~~
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 5.5%. For Mr. Duberstein, our estimated cost for providing this benefit is $35,335, and we have also included in “All Other Compensation” $375,000 we paid to The Duberstein Group for consulting services. This amount was paid to The Duberstein Group, not to Mr. Duberstein. Our transactions with The Duberstein Group are discussed more in “Corporate Governance—Certain Transactions and Relationships—Transactions with the Duberstein Group.” Amounts shown under “All Other Compensation” do not include gifts made by the Fannie Mae Foundation under its matching gifts program, under which gifts made by our employees and directors to 501(c)(3) charities are matched, up to an aggregate total of $10,500 in any calendar year. No amounts are included for this program because the matching gifts are made by the Fannie Mae Foundation, not Fannie Mae. In addition, no amounts are included for a furnished apartment we lease near our corporate offices in Washington, DC for use by Mr. Ashley, the non-executive Chairman of our Board, when he is in town on company business. Provided that he reimburses us, Mr. Ashley is permitted to use the apartment up to twelve nights per year when he is in town but not on company business.
⁽⁴⁾ Mr. Duberstein resigned from our Board in February 2007. Mr. Gerrity, Ms. Korologos and Mr. Marron each left our Board in 2006.
Cash Compensation.  Effective January 1, 2008, our directors will be paid a retainer at an annual rate of $100,000. Committee chairs will receive an additional retainer at an annual rate of $25,000 for the Audit Committee chair and $15,000 for all other committee chairs. Our Board has the authority to change or otherwise vary the amount of cash compensation to non-management directors. During 2006, our non-management directors, with the exception of the non-executive Chairman of our Board, were paid a retainer at an annual rate of $35,000, plus ~~$1,000~~$1,500 for attending each Board or Board committee ~~meeting.~~meeting in person or by telephone. Committee ~~chairmen~~chairs received an additional retainer at an annual rate of $10,000, plus an additional $500 for each committee meeting ~~they~~chaired in person and $300 for each telephonic committee meeting chaired. ~~Directors who participated in telephone conference meetings~~In recognition of the substantial amount of time and effort necessary to fulfill the duties of non-executive Chairman of the Board ~~or Board committees~~during 2006, Mr. Ashley received ~~$600 per meeting plus~~ an ~~additional $300~~annual fee of $500,000.
Restricted Stock Awards.  We currently have a restricted stock award program for ~~each telephone conference committee meeting that they chaired. In addition, each nonmanagement director received or became vested in~~non-management directors. This program provides for the periodic awards of restricted common stock vesting in annual installments provided the director continues to serve on the Board of Directors. If the proposed amendment to the Fannie Mae Stock Compensation Plan of 2003, which we refer to as the “2003 Plan” or the “Plan,” described in Proposal 3 is approved, this program and the option program for directors (see “Stock Option Awards” below) will be replaced with the program described under “Non-Management Director Restricted Stock” in “Proposal 3: Approval of Amendment to Fannie Mae Stock Compensation Plan of 2003.”
As part of the current program for periodic awards of restricted stock, ~~options~~we granted 871 shares of restricted common stock to each non-management director in May 2001, under the Fannie Mae Stock Compensation Plan of 1993, which we refer to as ~~discussed below. As~~the “1993 Plan.” These shares vest on the day before each annual meeting at the rate of ~~January 1,~~20% each year. Each director who joined the Board through May 2006 received a pro rata grant, based on the time remaining in five-year cycle.
Under the 2003 Plan the first award of restricted stock was scheduled to be made at the 2006 annual ~~retainer paid~~meeting. This award was not made and will not be made if the proposed amendment to ~~Fannie Mae~~the 2003 Plan described in Proposal 3 is approved. The award was to have a fair market value of $75,000, and the shares were to vest on the day before each annual meeting at the rate of 25% each year. Directors who joined the Board before the next grant in 2010 were to receive a pro rata grant.
Under both the 1993 Plan and the 2003 Plan, vesting of shares accelerates upon departure from the Board due to death, disability, or, for elected directors, not being renominated after reaching age 70. Otherwise, directors forfeit unvested shares upon leaving the Board.
In addition, in October 2003 we granted 2,600 shares of restricted common stock to each non-management director who was a member of the Board at that time, scheduled to vest in four equal annual installments beginning with the May 2004 annual meeting. We subsequently made pro rata grants to non-management directors who ~~are committee chairmen was increased~~joined the Board after October 2003 and prior to ~~$45,000.~~the scheduled time of the last vesting in May 2007.
In December 2006, the Board approved the vesting of restricted stock that would have vested at the 2005 and 2006 annual meetings if such meetings had been held.

26
~~Directors who are employees of Fannie Mae receive no compensation for their service as directors.~~
Stock ~~Options~~Option Awards.
~~Each nonmanagement~~  Under the terms of the 2003 Plan, each non-management director is granted an annual nonqualified stock option to purchase 4,000 shares of common stock immediately following the annual meeting of shareholders at the fair market value on the date of grant. ~~The date of grant is the date of the~~A non-management director elected between annual ~~meeting of shareholders. A nonmanagement director appointed or elected as a mid-term replacement will receive~~meetings receives a nonqualified stock option to purchase at the fair market value on the date of grant a pro rata number of shares ~~equal to the fraction of the remainder of the term. In May 2002, each nonmanagement director received an option to purchase 4,000 shares of common stock, with a fair market value~~based on the ~~date of grant of $78.885.~~time remaining until the next annual meeting. Each option ~~granted in 2002~~ will expire ten years after the date of grant and ~~was exercisable immediately~~vests in four equal annual installments beginning on the ~~date~~first anniversary of ~~grant.~~the grant, subject to accelerated vesting upon the director’s departure from the Board of Directors. Non-management directors generally have one year to exercise the options granted under the 2003 Plan when they leave the Board. Options granted on or prior to May 20, 2003 under the 1993 Plan must generally be exercised within three months after a director leaves the Board.
If the proposed amendment to the 2003 Plan described in Proposal 3 is approved, no annual stock option awards will be made to the non-management directors with respect to annual meetings that would have been held in 2005 or 2006. In addition, if the amendment to the 2003 Plan is approved, automatic option grants for 2007 and future years will be discontinued.
Stock Ownership Guidelines for Directors.  Under our Guidelines, each non-management director is expected to own shares of our common stock (including restricted stock, restricted stock units, or deferred shares) that have a total value equal to at least five times the annual cash retainer for service as a member of our Board (currently, five times $35,000, or $175,000). Directors have five years from the time of election or appointment to reach the expected ownership level, excluding trading blackout periods we impose. Effective January 1, 2008, the cash retainer for each non-management director will increase to an annual rate of $100,000. The ~~options held by nonmanagement~~ directors ~~who~~will have five years to increase the value of their common stock ownership from the current level of $175,000 to $500,000.
In addition, under our Guidelines, a non-management director may not sell or otherwise transfer shares of our common stock received pursuant to his or her service as a Board member (other than shares received in lieu of the director’s annual cash retainer) until the director has served on the Board for ~~at least ten years may be exercised for~~ a period of ~~one year following their retirement from the Board.~~
12
~~Restricted Stock~~
Fannie Mae has a restricted stock award program for nonmanagement members of the Board of Directors. The shares currently are awarded under the Fannie Mae Stock Compensation Plan of 1993. The award program provides for consecutive five-year cycles of awards of restricted common stock. Restricted common stock is common stock that cannot be sold until it vests over an extended period of time, with vesting contingent on the director’s continued service on the Board. Restricted common stock is held in an escrow account for each participant until it vests. At vesting, the restricted period ends and the escrow agent delivers the shares to participants.
Each participant has all of the rights and privileges of a shareholder as to the restricted common stock, other than the ability to transfer it, including the right to receive any cash or stock dividends declared with respect to the stock and the right to instruct the escrow agent in voting the stock. Awards vest over five years ~~at the rate of~~
~~20 percent per year, provided the participant is serving on the Board. If a director joins the Board during a five-year cycle,~~or until he or she ~~receives~~leaves the number of shares of restricted common stock that represents his or her pro rata portion of the grant for the cycle, based on the time remaining in the cycle. These grants vest in the same annual amounts as those of directors who participate in the full five-year cycle. Vesting accelerates upon departure from the Board due to death, disability, or the 70th birthday of an elected director.
In May 2001, Fannie Mae granted 871 shares of restricted common stock for the 2001-2006 cycle to each nonmanagement director who was a member of the Board at that time. The full award for the 2001-2006 cycle had a fair market value on the grant date of $65,813. The current members of the Board who were not members in May 2001 received pro rata awards upon their appointment or election to the Board, as follows: 856 shares to Mr. Ashe, Ms. Bordonaro, Mr. Harvey, and Mr. Segue in July 2001; 813 shares to Mr. Justiz in October 2001; and 697 shares to Mr. Malek in May 2002.
In May 2002, the following nonmanagement directors vested in shares of restricted common stock as follows: 174 shares to Mr. Ashley, Mr. Duberstein, Mr. Gerrity, Ms. McLaughlin Korologos, Mr. Marron, Ms. Mulcahy, Mr. Pickett, and Mr. Swygert; 159 shares to Mr. Ashe, Ms. Bordonaro, Mr. Harvey, and Mr. Segue; and 116 shares to Mr. Justiz. In addition, in May 2002, Mr. Vincent Mai, who left the Board in May 2002, and Mr. Stephen Friedman, who left the Board in December 2002, each vested in 174 shares of restricted common stock.
Board.
Fannie Mae Director’s Charitable Award ~~Program~~Program.
In 1992, we established ~~the Federal National Mortgage Association~~our Director’s Charitable Award Program. The purpose of the program is to acknowledge the service of ~~Fannie Mae’s~~our directors, recognize ~~the~~our own interest and that of ~~Fannie Mae and its~~our directors in supporting worthy institutions, and enhance ~~Fannie Mae’s~~our director benefit program to enable ~~Fannie Mae~~us to continue to attract and retain directors of the highest caliber. Under the program, ~~when~~we make donations upon the death of a director ~~dies, Fannie Mae will donate up to a maximum of $1,000,000 in $100,000 increments~~ to up to five charitable organizations or educational institutions of the director’s choice. We donate $100,000 for every year of service by a director up to a maximum of $1,000,000. To be eligible to receive a donation, a recommended organization must be an educational institution or charitable organization and must qualify to receive tax-deductible donations under the Internal Revenue Code of 1986. The program is generally funded by life insurance contracts on the lives of participating ~~directors; the funding is structured in a manner that will allow Fannie Mae to recover the entire program cost through the receipt of life insurance benefits.~~directors. The ~~program has no direct compensation value to directors because they do not receive any direct cash or tax benefit.~~
13
~~Audit Committee Report~~
~~The Audit Committee of Fannie Mae’s~~ Board of Directors ~~is composed~~may elect to amend, suspend, or terminate the program at any time.
Matching Gifts.  To further our support for charitable giving, non-employee directors are able to participate in the Matching Gifts Program of ~~five directors. In~~ the ~~business judgment~~Fannie Mae Foundation on the same terms as our employees.
Under this program, gifts made by employees and directors to 501(c)(3) charities are matched, up to an aggregate total of $10,500 in any calendar year, including up to $500 that may be matched on a2-for-1 basis.
Deferred Compensation.  We have deferred compensation plans in which non-management directors can participate. Non-management directors may 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 ~~each Committee member meets~~in any calendar year into the ~~independence, qualification, and expertise requirements of~~deferred compensation plan. Plan participants receive an investment return on the ~~New York Stock Exchange listing standards and Fannie Mae’s corporate governance guidelines.~~
~~The Audit Committee operates under~~deferred funds as if the funds were invested in a ~~written charter that is reviewed annually and was last approved~~hypothetical portfolio chosen by the ~~Board~~participant from among the available investment options, which are described in more detail below under “Nonqualified Deferred Compensation—Elective Deferred Compensation Plans.” Prior to the deferral, plan participants must elect 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 ~~Directors~~15 installments. Deferral elections generally

27
must be made prior to the year in ~~January 2003, a copy of~~ which ~~is attached~~the compensation otherwise would have been paid, and payments will be made as ~~Appendix A to this proxy statement. The Board adopted~~specified in the ~~current charter following an extensive review~~deferral election. Participants in ~~2002 of corporate governance best practices. In addition to preparing this Audit Committee report,~~ the ~~purpose of the Audit Committee under the charter is to oversee:~~
~~the accounting, reporting, and financial practices~~plan are unsecured creditors of Fannie Mae ~~including~~and are paid from our general assets.
If the ~~integrity of Fannie Mae’s financial statements;~~
~~the creation and administration of financial controls;~~
~~Fannie Mae’s compliance with legal and regulatory requirements;~~
~~the outside auditors’ qualifications and independence; and~~
~~the performance of Fannie Mae’s internal audit function and Fannie Mae’s outside auditors.~~
~~In accordance with this purpose, the outside auditors report directly~~proposed amendment to the ~~Audit Committee and the Committee has the sole authority~~2003 Plan described in Proposal 3 is approved, non-management directors also will be able to ~~appoint and retain the outside auditors, subject~~elect to ~~shareholder ratification. The Audit Committee approves~~defer receipt of any awards of restricted stock units. In addition, non-management directors will be able to elect to convert their annual retainer to deferred shares. Additional information about these deferral rights is included in ~~advance the fees for and terms~~“Proposal 3: Approval of ~~all auditing and non-audit services~~Amendment to be provided by the outside auditors. The Committee meets periodically separately with management, the head of the internal audit department, and the outside auditors. The Committee has the authority to retain counsel, accountants, and other advisors to assist the members in carrying out their duties.
For the year ended December 31, 2002, the Audit Committee met seven times. During the year, the Committee met with members of senior management (including the Chairman and Chief Executive Officer, the Vice Chairman and Chief Operating Officer, the Vice Chair, the ChiefFinancial Officer, the Controller, the head of the internal audit department, the Chief Technology Officer, the Executive Vice President for Law & Policy, the General Counsel, and the Senior Vice President for Human Resources) and internal tax, finance, legal, technology, and internal audit personnel, as well as representatives from Fannie Mae’s outside auditors, to discuss and review the audit scope and plans, the results of internal and external audit examinations, evaluations by the auditors of Fannie Mae’s internal controls, the quality of Fannie Mae’s financial reporting, Fannie Mae’s compliance with legal and regulatory requirements, and Fannie Mae ~~employees’ compliance~~Stock Compensation Plan of 2003—Description of Plan—Deferred Compensation.”
Other Expenses.  We also pay for or reimburse directors for out-of-pocket expenses incurred in connection with ~~the Code of Business Conduct, and other matters. Specifically, the Committee, among other things:~~
~~reviewed, and discussed with management, the audited financial statements for the year ended December 31, 2002;~~
~~discussed with the outside auditors the matters required to be discussed by Statement on Auditing Standards No. 61 (“SAS 61”);~~
~~received the written disclosures and the letter from the outside auditors, KPMG LLP, required by Independence Standards Board Standard No. 1 (“Independence Discussions with Audit Committees”);~~
~~conducted due diligence regarding the outside auditors’ independence from Fannie Mae and its management;~~
~~considered whether the rendering of non-audit services by the outside auditors was compatible with the auditors’ independence;~~
~~reviewed and discussed the scope and resources for the internal audit function;~~
~~reviewed and oversaw the process by which Fannie Mae’s Chief Executive Officer and Chief Financial Officer certified Fannie Mae’s periodic disclosures; and~~
~~reviewed the primary responsibilities of a newly established internal Disclosure Committee to assist the Chief Executive Officer and the Chief Financial Officer in fulfilling~~ their ~~responsibilities to oversee the accuracy and timeliness of material disclosures made by Fannie Mae.~~
~~In reliance~~service on the ~~reviews, reports,~~Board, including travel to and ~~discussions referred to above, the Audit Committee recommended~~from our meetings, accommodations, meals, and training.

28
EXECUTIVE OFFICERS
Our executive officers, other than Daniel H. Mudd, who is a nominee for election to the Board of Directors and ~~the Board of Directors approved,~~
14
~~that the audited financial statements be included in Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2002.~~
In addition, the Audit Committee approved and recommended to the Board of Directors the reappointment of Fannie Mae’s outside auditors, KPMG LLP, for 2003, subject to ratification by the shareholders at the 2003 annual meeting. The Committee pre-approved the fees for and terms of all audit and non-audit services to be provided by the outside auditors in 2003. The Audit Committee chairman must pre-approve any additional audit or non-audit services to be provided by the outside auditors and will report any pre-approvals to the Committee at the next scheduled meeting.
As part of its review of Fannie Mae’s internal controls and compliance with legal and regulatory requirements, the Committee also reviewedmodifications to Fannie Mae’s Code of Business Conduct for employees, including senior financial officers of Fannie Mae. The Board of Directors adopted the revised Code of Business Conduct in January 2003; the Codewhose background is ~~available on Fannie Mae’s Web site at www.fanniemae.com.~~
Interested parties may contact the Audit Committee by electronic mail, to “auditcommittee@fanniemae.com”, or by U.S. mail, to Audit Committee, c/o Office of the Secretary, Fannie Mae, Mailstop: 1H-2S/05, 3900 Wisconsin Avenue NW, Washington DC 20016-2892.
~~The Audit Committee~~
~~Thomas P. Gerrity, Chairman~~
~~William R. Harvey~~
~~Frederic V. Malek~~
~~Anne M. Mulcahy~~
~~Taylor C. Segue~~
15
~~Compensation Committee Report on Executive Compensation~~
This is the 2002 report of the Fannie Mae Compensation Committee. The Committee is composed entirely of independent directors. The Compensation Committee charter setting forth the Committee’s organization, purpose, and duties is available at www.fanniemae.com.
~~Fannie Mae’s Compensation Philosophy and Approach~~
Fannie Mae became a shareholder-owned corporation in 1968, and since that time has become one of the world’s largest financial institutions. In carrying out its mission, Fannie Mae has become the country’s largest source of financing for home mortgages and the largest issuer of private-sector corporate debt and mortgage-backed securities.
Because of the scope and complexity of Fannie Mae’s activities and the importance of its mission, it is imperative that the corporation always be in a position to attract and retain the best possible talent. To this end, Fannie Mae’s Board of Directors has adopted a compensation policy designed to help the corporation compete with other large, sophisticated financial services companies for the talent Fannie Mae needs.
In formulating and implementing Fannie Mae’s compensation philosophy, the Board of Directors, through its Compensation Committee, also has carefully considered its statutory obligations under the Fannie Mae Charter Act (the “Charter Act”). The Charter Act states that the Board of Directors shall pay its executive officers compensation which the Board determines to be “reasonable and comparable with compensation for employment in other similar businesses (including other publicly held financial institutions or major financial services corporations) involving similar duties and responsibilities.” Moreover, the Charter Act requires that “a significant portion of potential compensation of all executive officers…of [Fannie Mae] shall be based on the performance of [Fannie Mae].” The Compensation Committee has based its compensation philosophy on these statutory requirements and has established review processes to ensure that this philosophy is implemented rigorously and carefully.
Accordingly, the central tenets of Fannie Mae’s compensation philosophy are pay for performance and comparability. Pay for performance is reflected strongly in the structure of Fannie Mae’s compensation programs. It is the core principle underlying the programs. Other than base salary, all major elements of Fannie Mae’s compensation program for the most senior members of the executive officer group are tied to annual and long-term performance goals. Furthermore, through the use of stock vesting over multi-year terms, Fannie Mae tightly aligns the interests of executives with those of shareholders.
The Committee acts to ensure that Fannie Mae’s compensation is reasonable and comparable with the compensation of executives in other similar businesses that involve similar duties and responsibilities. Each year, the Compensation Committee reviews compensation survey data to analyze current compensation practices at companies comparable to Fannie Mae in terms of asset size, line of business, market capitalization, and other factors. Specific Fannie Mae officer positions are compared to positions involving similar duties and responsibilities. The market data reviewed by the Committee for specific officer positions comes from companies included in the S&P Financials Index shown in the stock performance graph, as well as other publicly held financial institutions and major financial services companies that compete for executives whose skills and experience are sought by Fannie Mae. The Committee utilizes as a third party resource a nationally recognized executive compensation consulting firm to assist in this comparability analysis.
In 2002, the Committee also asked its executive compensation consultant to provide a comprehensive assessment of Fannie Mae’s compensation philosophy to assist the Committee in its analysis of that pay philosophy, market comparability, and types of long-term incentives used. Based on that review, the Committee decided to continue to target cash compensation (~~i.e~~., salary and annual bonus) at approximately the 50th percentile of the market data and positions total compensation (cash plus stock-based awards) at approximately the 65th percentile. The market data is used to determine specific salary, bonus, and variable long-term incentive award targets by officer position. The proportion of the total compensation package tied
16
~~to performance measures increases with the rank of the executive officer.~~
In implementing Fannie Mae’s compensation philosophy, the Committee each year conducts an assessment of corporate and individual performance. Each officer’s individual performance is assessed on both individual business results and the demonstration of specific leadership qualities throughout the year. Evaluation of leadership qualities are assessed through the collection of reviews from both the officer’s subordinates and superiors. In the final step of the performance review process, an overall performance rating is assigned reflecting a balance of business results and demonstration of leadership.
The performance rating is used to determine actual pay for salary, bonus, and variable long-term incentive awards relative to the targets. The Committee has final authority over compensation decisions for senior vice presidents, and the full non-management board determines compensation for executive vice presidents and the Office of the Chairman.
The company’s executive compensation program has three primary tools: base salary, an annual bonus award, and variable long-term incentive stock awards. The program ties a large portion of each officer’s total compensation to performance over different time periods. To achieve a balanced result, Fannie Mae’s pay for performance approach provides a cash payment for achieving annual financial goals and stock based awards for medium and long-term performance generating increases in shareholder returns. This program is expressly designed not to put too much reliance on any one form of compensation.
~~Base Salary.~~ Base salary for executive officers is determined principally by the Committee’s judgment as to the market for comparable positions, informed by an annual market comparability review conducted by its third party consultant. Final salary determinations also reflect individual performance, leadership, and experience level. In general, the Committee seeks to target annual total cash (salary plus bonus) to the 50th percentile of the comparative market.
~~Annual Incentive Plan.~~ The Annual Incentive Plan puts a portion of each executive officer’s annual compensation at risk. Financialgoals established by the Board at the beginning of the year and achievement against these goals determine the funding of the bonus pool from which the actual bonuses are paid. For 2002, the corporate financial goal was an aggressive earnings per share (“EPS”) growth measure that Fannie Mae exceeded.
~~Variable Long-Term Incentive Awards.~~ Variable long-term incentive awards are delivered in the form of stock options, and performance shares or restricted stock. All variable long-term incentive compensation programs are paid solely in Fannie Mae common stock, thereby reinforcing the shared interests of officers and shareholders. Officers at the senior vice president level and above receive half of the value of their annual variable long-term incentive award in the form of performance shares and half in the form of stock options.
~~Performance Shares.~~ Performance shares are pay for performance incentive awards that compensate senior management for meeting performance objectives over a three-year period. Each year, the Committee establishes designated award periods (“cycles”) of three years. At the beginning of each cycle, at the Committee’s request, the Board establishes program targets based on both financial and non-financial goals. The financial goals currently are tied to growth in EPS and the non-financial goals are tied to Fannie Mae’s strategic plan. The Committee has established a scorecard to measure Fannie Mae’s achievement of the strategic plan in the following areas:
~~leadership in increasing access to affordable housing;~~
~~leading presence in the secondary mortgage market;~~
~~optimal interest rate, credit, and policy risk management;~~
~~development of a corporate culture to enhance strategy execution; and~~
~~development of an e-commerce infrastructure to increase capabilities and lower costs.~~
~~The EPS goals and the strategic goals are given equal weighting (~~~~i.e~~., 50 percent each) in determining award payout. The Committee determines actual achievement against these goals at the conclusion of each cycle. An actual award payout can range from 40 percent of the performance shares granted for threshold
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achievement to 150 percent for goal achievement at maximum levels. No payment is made if achievement is below the pre-determined threshold. Fannie Mae exceeded the EPS growth goals established for the three-year performance share cycle that concluded in 2002. The Committee also determined that Fannie Mae met or exceeded each of the 2000-2002 performance share cycle’s strategic non-financial goals set forth above.
~~Stock Options.~~ Stock Options link the interests of executives and shareholders by providing value to the executive only when the stock price increases over a number of years. Stock options vest over a four-year period at the rate of 25% per year and generally have a ten-year term. The number of stock options received by Fannie Mae executive officers is targeted, when combined with performance shares, to bring total compensation to the 65^th ~~percentile of the comparative market.~~
~~Chief Executive Officer Compensation~~
~~All of the executive compensation processes and policies~~ described above, are applied in setting the compensation and assessing the performance of Mr. Raines. In addition to the multi-rater feedback for all officers, all nonmanagement members of the Board participate in the review of Mr. Raines’ performance.
Without Mr. Raines present, the nonmanagement members of the Board discussed the Committee’s review of Mr. Raines’ performance for 2002. They assessed Mr. Raines’ performance against a broad range of leadership criteria including: strategic thinking, providing vision and direction, accelerating change, intellectual honesty, integrity, motivating and energizing people, teamwork and partnering, influencing ideas and initiatives, delivering results, valuing all people, and developing management. The Board considered feedback from subordinates and Board members obtained through the same survey instrument used to collect performance feedback for other officers. Mr. Raines’ performance also was measured against the financial and non-financial goals established for Fannie Mae’s strategic plan.
All of this information was used to make the performance-based compensation decisions for Mr. Raines. Overall, the Board concluded that the performance of Fannie Mae under Mr. Raines’leadership exceeded targets set in advance and met or exceeded that of comparable companies. The Committee specifically noted the following 2002 achievements in determining Mr. Raines’ compensation for 2002 and variable long-term incentive award grants:
~~record financial results;~~
~~record-breaking business volumes;~~
~~near record low credit losses;~~
~~strong portfolio margin performance and interest-rate risk management;~~
~~record service to underserved families— Fannie Mae passed the halfway mark of its ten-year, $2 trillion American Dream Commitment just three years after its launch;~~
~~Fannie Mae met each of the housing goals established by the Department of Housing and Urban Development and its own goal to lead the market in service to minority families;~~
expansion of corporate transparency, through implementation of voluntary commitments and increased investor disclosures, including the voluntary commitment to register Fannie Mae’s common stock with the SEC;
~~investment in Fannie Mae’s future through the implementation of a new core technology infrastructure and development of new mortgage products and lender services; and~~
~~continued progress in Fannie Mae’s executive leadership initiatives, including development of a new officer performance assessment and management process.~~
~~The Committee’s specific 2002 compensation determinations with respect to Mr. Raines are as follows and are reflected in the Summary Compensation Table at page 24.~~
~~Base Salary~~. For 2002, the Board set Mr. Raines’ cash base salary at $992,250, unchanged since 2000, and slightly below the midpoint of the market. For the purposes of calculating his pension and life insurance benefits, however, the Board set a reference annual base salary for Mr. Raines at $1,093,956, reflecting a five percent increase over the prior year. Consistent with Fannie Mae’s pay for performance philosophy, the difference between Mr. Raines’ cash base salary and reference annual base salary is awarded as additional long-term, equity-based compensation.
~~Annual Bonus.~~~~For 2002, Mr. Raines’ annual bonus was determined against goals set at the~~
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beginning of the year based on corporate financial performance for the year, measured by growth in EPS. Fannie Mae significantly exceeded that goal and Mr. Raines’ bonus for the year reflects his contributions to that performance.
~~Variable Long-Term Incentive Compensation~~.The information provided in the proxy statement on variable long-term compensation reflects two actions taken by the Committee. First, the Committee awarded the long-term incentive payouts reported in the Summary Compensation Table at page 24. These stock payouts reflect the achievement of performance share programs’ financial and strategic goals for multi-year periods.
Second, in line with Fannie Mae’s pay for performance goals and to continue to align Mr. Raines directly with the long-term interests ofshareholders, the Committee granted Mr. Raines performance shares for the three-year period beginning in January 2003 and stock options, vesting over four years, based on his performance evaluation. The awards are set forth in the tables at pages 25 and 26.
~~Conclusion~~
The Committee believes both the design of Fannie Mae’s plans and the actual total compensation levels described in this proxy statement reflect adherence to the Board of Directors’ obligations under the Charter Act and careful thinking about what is appropriate from both competitive and shareholder perspectives, and clearly reflect Fannie Mae’s compensation philosophy.
~~The Compensation Committee~~
~~Anne M. Mulcahy, Chairman~~
~~Ann McLaughlin Korologos~~
~~Joe K. Pickett~~
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~~Nominating and Corporate Governance Committee Report~~
The Nominating and Corporate Governance Committee of the Fannie Mae Board of Directors is composed of four independent directors and operates under a written charter that was last approved by the Board in January 2003. At that time, Fannie Mae’s Board also approved a high standard of independence for directors, which is set forth in Fannie Mae’s Corporate Governance Guidelines, attached as Appendix B to this proxy statement. A substantial majority of the members of the Board meet the standard. Each member of the Nominating and Corporate Governance Committee currently meets not only that standard, but also the enhanced independence requirements for audit committee members, which are also set forth in our Corporate Governance Guidelines.
~~Duties and Responsibilities~~
Among its responsibilities, the Nominating and Corporate Governance Committee makes recommendations to the Board about individuals to be elected by the shareholders as Fannie Mae directors. The Committee also plays a leadership role in shaping Fannie Mae’s corporate governance.
The Nominating and Corporate Governance Committee met seven times in 2002. The Committee recommended 13 nominees for election as directors at the 2002 Annual Meeting of Shareholders. It also undertook a Corporate Governance Benchmarking Project, as discussed below.
Fannie Mae’s nonmanagement directors meet in executive session on a regular basis. In her role as the Chairman of the Nominating and Corporate Governance Committee, Ms. McLaughlin Korologos establishes the agenda and serves as the presiding director for all meetings of the non-management directors.
~~Corporate Governance Benchmarking Project~~
Fannie Mae has received high marks for the quality of its governance practices. For example, Standard & Poor’s issued Fannie Mae a corporate governance score of “9.0” on a scale of 1 to 10 (with 10 being the highest), after an extensive review of our corporate governance practices. Standard & Poor’s judged our corporate governance practices to be at “a very strong level on a global basis of comparison.” Fannie Mae also has strived consistently to enhance those practices in an effort to maintain the highest of standards.
To this end, in July 2002, the Nominating and Corporate Governance Committee undertook a Corporate Governance Benchmarking Project, consisting of a thorough review of Fannie Mae’s corporate governance practices. The Committee reviewed Fannie Mae’s practices in light of emerging requirements, including proposed corporate governance listing standards of the New York Stock Exchange and best practices followed by other companies. The goal of the benchmarking project was to maintain and enhance a corporate governance framework for Fannie Mae that is best in class.
Based upon its review, the Committee determined that Fannie Mae already was operating under many best corporate governance practices. In January 2003, the Committee recommended enhanced corporate governance standards to the Fannie Mae Board, and the Board voted to approve these standards, which are reflected in:
~~a new set of Corporate Governance Guidelines;~~
~~updated charters for the Board’s Audit, Compensation, and Nominating and Corporate Governance Committees; and~~
~~an expanded Code of Business Conduct and Ethics and Conflict of Interests Policy for Members of the Board of Directors.~~
~~These documents implement and strengthen Fannie Mae’s corporate governance practices. They are available on Fannie Mae’s Web site at www.fanniemae.com.~~
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Interested parties wishing to communicate their concerns or questions about Fannie Mae to the Chairman of the Committee or to the non-management directors as a group may do so by electronic mail, to “board@fanniemae.com”, or by U.S. mail, to Non-Management Directors, c/o Office of the Secretary, Fannie Mae, Mailstop: 1H-2S/05, 3900 Wisconsin Avenue NW, Washington, DC 20016-2892.
In the coming months, additional provisions of the Sarbanes-Oxley Act of 2002, a new law addressing regulation of accounting and corporate governance, and the corporate governance listing standards proposed by the New York Stock Exchange are expected to become final. WithFannie Mae’s fundamental corporate governance practices already in place, the Nominating and Corporate Governance Committee is prepared to respond quickly upon approval of final rules and standards. The benchmarking project is ongoing, and its work is being updated periodically to enable Fannie Mae to maintain its position at the forefront of corporate governance best practices.
~~The Nominating and Corporate Governance Committee~~
~~Ann McLaughlin Korologos, Chairman~~
~~Stephen B. Ashley~~
~~Thomas P. Gerrity~~
~~Donald B. Marron~~
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~~Executive Officers Who Are Not Nominees~~
~~Our executive officers who are not nominees for election to the Board of Directors~~ have provided the following information about their principal occupation, business experience, and other matters.
~~Jamie S. Gorelick~~Kenneth J. Bacon, ~~age 52, has been~~53 Executive Vice Chair of the Board of Fannie Mae since May 1997. Before joining Fannie Mae, Ms. Gorelick was Deputy Attorney General of the United States, beginning in 1994. She served as General Counsel of the United States Department of Defense from May 1993 to March 1994President—Housing and was a partner at Miller, Cassidy, Larroca & Lewin, a law firm, from January 1981 to April 1993. Ms. Gorelick also serves as a director of United Technologies Corporation and Schlumberger Limited. In addition, Ms. Gorelick is a member of the Harvard Board of Overseers. Ms. Gorelick has been a Fannie Mae director since 1997. As announced by Fannie Mae on January 10, 2003, Ms. Gorelick will leave Fannie Mae on June 30, 2003. Ms. Gorelick’s term as a director and Vice Chair of the Board will end as of the annual meeting.
Community Development

~~Thomas E. Donilon,~~ age 47, has been Executive Vice President—Law and Policy and Secretary since May 2000. He served as Senior Vice President, General Counsel and Secretary from September 1999 to May 2000. Mr. Donilon was a partner with the law firm of O’Melveny & Myers from February 1991 to March 1993 and November 1996 to September 1999 when he joined
• Fannie ~~Mae. Mr. Donilon served as Assistant Secretary of State for Public Affairs and Chief of Staff to the Secretary of State from March 1993 to November 1996.~~
Mae

~~Louis W. Hoyes,~~ age 54, has been Executive Vice President—Single-Family Mortgage Business since May 2000. He served as Senior Vice President—Multifamily Lending and Investment from September 1995 to May 2000. Prior to his employment with Fannie Mae, Mr. Hoyes was a managing director of Citicorp Real Estate, holding various management positions over his 22-year career in their commercial real estate division and Latin American banking group. He also served as a Senior Credit Officer of Citibank, N.A., from 1982 until he joined Fannie Mae.

~~Robert J. Levin,~~ ~~age 47, has been~~• Executive Vice President—Housing and Community Development since ~~June 1998. He was Executive Vice President—Marketing from June 1990 to June 1998. He joined Fannie Mae in 1981.~~
July 2005

  • Interim Head of Housing and Community Development—January 2005 to July 2005
  • Senior Vice President—Multifamily Lending and Investment—May 2000 to January 2005
  • Senior Vice President—American Communities Fund—October 1999 to May 2000
  • Senior Vice President of the Community Development Capital Corporation—August 1998 to October 1999
  • Senior Vice President of Fannie Mae’s Northeastern Regional Office in Philadelphia—May 1993 to August 1998
• Directorships: Fannie Mae Foundation since January 1995 (Vice Chairman since January 2005), Comcast Corporation, Corporation for Supportive Housing, and Maret School
• Other Activities: Member of the Executive Leadership Council and the Real Estate Round Table
~~Adolfo Marzol,~~Robert T. Blakely ~~age 42, has been~~ , 65 Executive Vice ~~President—Finance and Credit~~President
• Fannie Mae
  • Executive Vice President since ~~November 2002. He was~~January 2006
  • Executive Vice President and Chief ~~Credit~~Financial Officer—January 2006 to August 2007
• MCI, Inc. (Executive Vice President, Chief Financial Officer ~~from June 1998~~and Chief Accounting Officer—April 2005 to ~~November 2002. He was Senior~~January 2006) and (Executive Vice ~~President—Single-Family Business Management from~~ President and Chief Financial Officer—April 2003 to April 2005)
• President of Performance Enhancement Group, Inc., a business development services firm—July ~~1996~~2002 to ~~June 1998. He was Senior Vice President—Capital Markets from February 1996 to July 1996. Prior to his employment with Fannie Mae, Mr. Marzol was~~April 2003
• Executive Vice President and Chief Financial Officer ~~from July 1993 to January 1996 and Senior Vice President—Interest Rate Risk from January 1991~~of Lyondell Chemical Company—November 1999 to June ~~1993 of Chase Manhattan Mortgage Corporation, a mortgage company.~~
2002

• Tenneco, Inc. (Executive Vice President from 1996 to November 1999) and (Chief Financial Officer from 1981 to November 1999)
• Directorships: Financial Accounting Foundation (Trustee); Natural Resources Partners L.P.; and Westlake Chemicals Corporation

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Enrico Dallavecchia, 45 Executive Vice President and Chief Risk Officer
• Executive Vice President and Chief Risk Officer since June 2006
• JP Morgan Chase (Head of Market Risk for Retail Financial Services, Chief Investment Office and Asset Wealth Management—April 2005 to May 2006) and (Market Risk Officer for Global Treasury, Retail Financial Services, Credit Cards and Proprietary Positioning Division and Co-head of Market Risk Technology—December 1998 to March 2005)
Linda K. Knight, 57 Executive Vice President—Enterprise Operations
• Fannie Mae
  • Executive Vice President—Enterprise Operations since April 2007
  • Executive Vice President—Capital Markets—March 2006 to April 2007
  • Senior Vice President and Treasurer—February 1993 to March 2006
  • Vice President and Assistant Treasurer—November 1986 to February 1993
  • Director, Treasurer’s Office—November 1984 to November 1986
  • Assistant Director, Treasurer’s Office—February 1984 to November 1984
  • Senior Market Analyst—August 1982 to February 1984
Robert J. Levin,52 Executive Vice President and Chief Business Officer
• Fannie Mae
  • Executive Vice President and Chief Business Officer since November 2005
  • Interim Chief Financial Officer—December 2004 to January 2006
  • Executive Vice President of Housing and Community Development—June 1998 to December 2004
  • Executive Vice President—Marketing—June 1990 to June 1998
• Fannie Mae Foundation (previously served as director and treasurer).

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Thomas A. Lund,48 Executive Vice President—Single-Family Mortgage Business
• Fannie Mae
  • Executive Vice President—Single-Family Mortgage Business since July 2005
  • Interim head of Single-Family Mortgage Business—January 2005 to July 2005
  • Senior Vice President—Chief Acquisitions Office—January 2004 to January 2005
  • Senior Vice President—Investor Channel—August 2000 to January 2004
  • Senior Vice President—Southwestern Regional Office, Dallas, Texas—July 1996 to July 2000
  • Vice President for Marketing—January 1995 to July 1996
Rahul N. Merchant, 51 Executive Vice President and Chief Information Officer
• Executive Vice President and Chief Information Officer since November 2006
• Merrill Lynch & Co. (Head of Technology—2004 to 2006) and (Head of Global Business Technology, Global Markets and Investment Banking division—2000 to 2004)
• Executive Vice President of Dresdner, Kleinwort and Benson—1998 to 2000
• Previously served as Senior Vice President of Sanwa Financial Products and First Vice President of Lehman Brothers, Inc.
• Other Activities: Board of Advisors of the American India Foundation
Peter S. Niculescu, ~~age 43, has been~~ 48 Executive Vice President—Capital Markets
• Fannie Mae
  • Executive Vice President—Capital Markets (previously Mortgage ~~Portfolio Business~~Portfolio) since November ~~2002. He was~~2002
  • Senior Vice President—Portfolio ~~Strategy from~~ Strategy—March 1999 to November 2002. Prior to his employment with Fannie Mae, Mr. Niculescu was a Managing Director and Co-Head of Fixed Income Research for Goldman Sachs & Co. He joined Goldman Sachs in 1990 and held a variety of positions including Managing Director—Mortgage Research, Vice President—Mortgage Research, and Corporate Bond Strategist.
2002

William B. Senhauser,44 Senior Vice President and Chief Compliance Officer
• Fannie Mae
  • Senior Vice President and Chief Compliance Officer since December 2005
  • Vice President for Regulatory Agreements and Restatement—October 2004 to December 2005
  • Vice President for Operating Initiatives—January 2003 to September 2004
  • Vice President, Deputy General Counsel—November 2000 to January 2003

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22
~~Julie St. John,~~ age 51, has been Executive Vice President and Chief Technology Officer since July 2000. She served as Senior Vice President—Mortgage Business Technology from November 1999 to July 2000. She was Senior Vice President—Guaranty and Franchise Technologies from November 1993 to November 1999. Ms. St. John joined Fannie Mae in 1990.
~~Michael J. Williams,~~ age 45, has been President—Fannie Mae eBusiness since July 2000. He served as Senior Vice President—e-Commerce from March 2000 to July 2000. He was Senior Vice President—Customer Applications and Technology Integration from November 1993 to March 2000. Mr. Williams joined Fannie Mae in 1991.
Stephen M. Swad, 46 Executive Vice President and Chief Financial Officer
• Fannie Mae
  • Executive Vice President and Chief Financial Officer since August 18, 2007
  • Executive Vice President and Chief Financial Officer Designate—May 2007 to August 17, 2007
• Executive Vice President and Chief Financial Officer of AOL, LLC—February 2003 to February 2007
• Executive Vice President of Finance and Administration of Turner Broadcasting System Inc.’s Turner Entertainment Group—April 2002 to February 2003
• Various corporate finance roles at Time Warner—1998 through 2002
• Previously served as a Partner of KPMG’s national office and Deputy Chief Accountant at the U.S. Securities and Exchange Commission
Beth A. Wilkinson,45 Executive Vice President—General Counsel and Corporate Secretary
• Executive Vice President—General Counsel and Corporate Secretary since February 2006
• Partner and Co-Chair, White Collar Practice Group at Latham & Watkins LLP—1998 to 2006
• Department of Justice (prosecutor and special counsel forU.S. v. McVeigh and Nichols—1996 to 1998), (principal deputy of the Terrorism & Violent Crime Section—1995), and (Special Counsel to the Deputy Attorney General—1995 to 1996)
• Assistant U.S. Attorney in the Eastern District of New York—1991 to 1995
• Captain, U.S. Army (serving as an assistant to the general counsel of the Army for Intelligence & Special Operations)—1987 to 1991
• Other Activities: Board of Directors of Equal Justice Works
Michael J. Williams, 50 Executive Vice President and Chief Operating Officer
• Fannie Mae
  • Executive Vice President and Chief Operating Officer since November 2005
  • Executive Vice President for Regulatory Agreements and Restatement—February 2005 to November 2005
  • President—Fannie Mae eBusiness—July 2000 to February 2005
  • Senior VicePresident—e-commerce—July 1999 to July 2000
  • Various positions in Single-Family and Corporate Information Systems divisions—1991 to July 1999
Under ~~Fannie Mae’s~~our bylaws, each officer holds office until his or her successor is chosen and qualified or, if earlier, until he or she dies, resigns, retires or is removed from office by the Board of Directors.

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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This section discusses the principles underlying our compensation policies and decisions relating to our named executives for 2006 identified below.
• Daniel Mudd, President and Chief Executive Officer
• Robert Blakely, Executive Vice President (Chief Financial Officer—January 2006 to August 2007)
• Robert Levin, Executive Vice President and Chief Business Officer (Interim Chief Financial Officer—December 2004 to January 2006)
• Peter Niculescu, Executive Vice President—Capital Markets
• Beth Wilkinson, Executive Vice President, General Counsel and Corporate Secretary
• Michael Williams, Executive Vice President and Chief Operating Officer
• Julie St. John, former Executive Vice President and Chief Information Officer
What are the goals of our compensation program?
Our compensation philosophy provides that our compensation program should attract, retain, and reward the skilled talent needed to successfully manage a leading financial services company.
Compensation must also be consistent with the Charter Act, which requires that compensation be reasonable and comparable with the compensation of executives performing similar duties in similar businesses.
Consistent with our compensation philosophy and the Charter Act, our compensation program is designed to:
  • drive a “pay for performance” perspective that rewards company and individual performance, while supporting our mission to help more families achieve homeownership;
  • promote a long-term focus and align management’s and shareholders’ interests by providing a greater portion of compensation that is stock-based for more senior members of management;
  • foster compliance with legal and regulatory requirements; and
  • provide compensation that is straightforward and easy to understand.
Our company goals for our cash bonuses under our annual incentive plan for 2006 are set forth below under “How did we determine the amount of each element of 2006 cash and stock compensation?”
How does comparability factor into our executive compensation decisions?
Both the Charter Act and our compensation philosophy require that we consider comparability in setting executive compensation. We determine comparability by reviewing executive compensation practices of a group of high-quality, diversified financial services companies, which we refer to as our comparator group. Among this group, our earning assets are substantially larger than the median, but in many cases our operations are less diverse. These companies have pay practices similar to ours and we compete with them for executive talent. The members of the comparator group are initially identified by management with the assistance of its outside executive compensation consultant, Johnson Associates, Inc. The composition of the comparator group is then reviewed and approved by the Compensation Committee. In 2006, we used the same comparator group as we did in 2005.

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The members of our comparator group for 2006 are identified in the table below.
Allstate Countrywide SunTrust Banks
American Express Freddie Mac U.S. Bancorp
American International Group JP Morgan Chase Wachovia
Bank of America MetLife Washington Mutual
Capital One National City Wells Fargo
Citigroup Prudential
For 2006 compensation, we used as a guideline the median, or 50th percentile, of the total of salary, bonus, and equity compensation paid at companies in our comparator group.
In determining an executive’s compensation, the Compensation Committee and Board were free to vary above or below the median if they determined it was appropriate as a result of factors such as the experience and expertise of the executive, our need for specific skill sets, and the executive’s performance. For particular positions, data from companies outside our comparator group were used to provide a broader perspective and ensure that we had a comprehensive view of the market for executives with certain specific skills or experience.
How do we use outside executive compensation consultants?
Management receives advice on executive compensation matters from the executive compensation consulting firm of Johnson Associates, Inc. Johnson Associates provides no other services to Fannie Mae.
The Board of Directors retains the executive compensation consulting firm of Semler Brossy Consulting Group to provide independent executive and board compensation information and advice. Semler Brossy provides no other services to Fannie Mae.
What were the elements of compensation for our named executives for 2006, and why did we pay those elements?
Compensation for our named executives for 2006 consisted of salaries, cash incentive bonuses, long-term incentive awards, employee benefits, and perquisites. We provided this compensation mix in order to maintain a competitive compensation program and to reinforce our corporate objectives. Salary was paid on a bi-weekly basis throughout the year, while annual bonuses and long-term incentive awards relating to 2006 performance were paid or granted in January 2007.
Salary, Bonuses, and Long-Term Incentive Awards.
• Salary is the basic cash compensation for the executive’s performance of his or her job responsibilities. It is intended to reflect the executive’s level of responsibility and individual performance over time.
• Annual cash incentive bonuses reward executives based on a combination of corporate and individual performance during the year measured against pre-established corporate goals and individual goals designed to align with the corporate goals. We also use sign-on bonuses or guaranteed first-year bonus minimums from time to time to recruit executives with critical skills.
• Long-term incentive awards are stock-based awards that vest over a period of years. For 2006 performance, these awards were delivered in the form of restricted stock or restricted stock units with a four-year vesting schedule. We believe that providing a significant portion of senior management compensation through long-term incentive awards based on our common stock and with a multi-year vesting schedule aligns the long-term interests of our senior management with those of our other shareholders, reinforcing a shared interest in company performance. Long-term incentive awards may also be used as sign-on bonuses to recruit executives.
Employee Benefits.  Our employee benefits are a fundamental part of our compensation program, and serve as an important tool in recruiting and retaining executives.
• Pension Benefits.  Our named executives participate in our Executive Pension Plan. This plan is a nonqualified, defined benefit plan that supplements the pension benefits payable to the named executive

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under our tax-qualified pension plan, which is the “Retirement Plan,” discussed below under “Compensation Tables—Pension Benefits—Fannie Mae Retirement Plan.” The annual pension benefit (when combined with our Retirement Plan) for our Executive Vice Presidents equals 40%, and for our Chief Executive Officer equals 50%, of the executive’s highest average covered compensation earned during any 36 consecutive months within the last 120 months of employment. Covered compensation under the plan is limited to 150% of base salary for our Executive Vice Presidents and 200% of base salary for our Chief Executive Officer.
• A named executive is not entitled to receive a pension benefit under the Executive Pension Plan until the executive 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. We consider the Executive Pension Plan an important component of our executives’ total compensation and believe requiring ten years of service as a participant before full vesting serves as a significant retention tool. Our Executive Pension Plan is discussed in more detail below under “Compensation Tables—Pension Benefits.”
• Other Employee Benefits and Plans.  In general, named executives are eligible for the employee benefits available to our employee population as a whole, including our medical insurance plans, our 401(k) plan, and our matching gifts program. Named executives also are eligible to participate in programs we make available only to management employees at varying levels, including our elective deferred compensation plan.
• Severance benefits.  Our Chief Executive Officer and our Chief Business Officer are entitled to receive severance benefits under agreements we entered into with them, dated November 15, 2005 and June 19, 1990, respectively. During 2006, our named executives other than Mr. Mudd were eligible to receive severance benefits under certain circumstances pursuant to a severance program no longer available to them. See “Compensation Tables-Potential Payments Upon Termination orChange-in-Control.”
Perquisites.  In 2006, we provided our named executives relatively limited perquisites not available to our general employee population, based primarily on business needs. We also provided perquisites to the extent appropriate and reasonable for retaining and attracting executives. These perquisites, and recent changes we have made to eliminate or require reimbursement of certain perquisites, are discussed below under “How and why have we changed our policy on perquisites?”
How do we look at salary, bonuses, and long-term incentive awards for 2006?
The following chart shows information about the salary, bonuses, and long-term incentive awards that were paid or granted to the named executives for 2006.
Compensation Paid or Granted for 2006⁽¹⁾

2006 Long-Term
Total of Base Salary,
Base Salary as
2006 Bonus
Incentive Award
Bonus, and Long-Term
Named executive⁽²⁾
of 12/31/06 (Paid in 2007) (Granted in 2007)⁽³⁾ Incentive Award

Daniel Mudd $ 950,000 $ 3,500,000 $ 9,999,947 $ 14,449,947
Robert Blakely 650,000 1,290,575 3,299,361 5,239,936
Robert Levin 750,000 2,087,250 6,667,104 9,504,354
Peter Niculescu 539,977 1,029,060 2,839,945 4,408,982
Beth Wilkinson 575,000 1,947,988 ⁽⁴⁾ 2,770,316 5,293,304
Michael Williams 650,000 1,630,200 5,247,443 7,527,643
⁽¹⁾ This table is not intended to replace the summary compensation table, required under applicable SEC rules, that is included below under “Compensation Tables—Summary Compensation Table for 2006.”
⁽²⁾ This table reflects compensation decisions made for our named executives who were still employed by Fannie Mae in January 2007. Ms. St. John entered into a separation agreement with us in July 2006, and she retired from Fannie Mae in December 2006. Information regarding Ms. St. John’s 2006 compensation appears below in the “Compensation Tables—Summary Compensation Table for 2006.”

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⁽³⁾ These awards consist of restricted stock or restricted stock units. The dollar amounts are based on the average of the high and low trading prices of our common stock of $56.66 on January 25, 2007, the date of grant. Mr. Mudd is required to hold one-fifth of his grant (net of shares withheld to pay withholding taxes) until his employment with Fannie Mae is terminated. This is in addition to Mr. Mudd’s obligation to hold shares under Fannie Mae’s stock ownership guidelines.
⁽⁴⁾ Includes a sign-on bonus of $800,000 paid in 2006 to Ms. Wilkinson when she joined us.
How did we determine the amount of each element of 2006 cash and stock compensation?
Overview of the Process for Determining Compensation.  The Board (or, in the case of Mr. Mudd, the independent members of the Board), based on the recommendations of the Compensation Committee, determines compensation for our named executives. In making recommendations to the Board for 2006 compensation, the Compensation Committee considered our Chief Executive Officer’s assessment of our other named executives’ performance and his compensation recommendation for these executives. In making a recommendation to the Board for Mr. Mudd, the Compensation Committee considered an assessment of his performance by the Chairman of our Board, Mr. Mudd’s self-evaluation, and the results of a360-degree survey of his leadership qualities. In making decisions and recommendations, the Compensation Committee also considered the market data provided by the compensation consultants for management and the Board, the importance of each executive’s role in the company, competition for individuals with the experience and skill sets of each executive and related market factors, retention considerations, and the executive’s experience and contributions to the company as a whole during the preceding year.
In addition, the Compensation Committee considered the entire compensation package for each named executive, taking into account—through review of a summary sheet—the named executive’s outstanding stock options, restricted shares, and performance share balances; existing severance arrangements with the executive, if any; and other benefits (such as life insurance, pension plan participation, and health benefits) available to the executive.
Determination of Salaries, Bonus, and Long-Term Incentive Awards
• Salaries.  The Board established salaries for Mr. Mudd, Mr. Williams, and Mr. Levin in November 2005 in connection with their appointments to their current positions. None of these three named executives received any increase in salary for 2006. Salaries for Mr. Blakely and Ms. Wilkinson were determined by the Board in connection with their hires. Mr. Niculescu’s and Ms. St. John’s salaries were increased in 2006 based on their performance, our company-wide budget for salary increases, and market-based information regarding compensation paid for executives with similar roles and responsibilities.
• Annual Incentive Plan Cash Bonuses.  The amount of an annual incentive plan cash bonus paid to a named executive depends on the company’s and the named executive’s performance measured against pre-established corporate and individual performance goals. During 2006, we engaged in a significant restatement of prior period financial statements and made an extensive effort to comply with the terms of the OFHEO Consent Order and to address a number of operational, policy, and infrastructure issues. As a result of the need to restate prior period financial statements, we had no reliable GAAP-compliant financial statements for recent periods. In light of these circumstances, our Board established the following set of performance goals, which focused on successfully operating the business while undertaking significant initiatives to address our financial reporting and compliance issues:
  • Regulation and Restatement.  Stabilize the company by (a) building strong and productive relationships with regulators; (b) restating prior period financial statements; (c) managing capital surplus; and (d) building relationships with investors;
  • Business Results.  Optimize the company’s business model and generate shareholder value through key initiatives;
  • Mission Results.  Fulfill our affordable housing mission goals by increasing liquidity to make U.S. housing more affordable and making an impact in highly disadvantaged communities;

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  • Operations and Controls.  Instill operational discipline into all functions, resulting in stronger processes, reduced risk, and compliance with Sarbanes-Oxley requirements; and
  • Customers and Employees.  Renew the company’s culture to achieve the company’s objectives by (a) demonstrating service, engagement, accountability, and good management; (b) reenergizing diversity programs; and (c) renewing our people strategy.
Achievement of these corporate performance goals affected cash bonuses for management-level employees throughout Fannie Mae, except for employees in our internal audit and compliance and ethics departments. These employees’ bonuses were subject to the achievement of goals tailored to their departments’ unique roles.
In conjunction with the establishment of corporate performance goals, in April 2006 the Compensation ~~Tables~~Committee approved individual bonus award targets for each named executive. Award targets for Mr. Mudd, Mr. Williams, and Mr. Levin were unchanged from those set in November 2005. The potential bonus that could have been paid to each named executive at the target level of achievement against the corporate and individual goals for 2006 is shown in the “Grants of Plan-Based Awards” table under “Compensation Tables” below. Payment significantly above target would occur only in a year in which both the company and the individual performed exceptionally well against goals.
In 2006, management provided the Compensation Committee with a mid-year update on progress against the corporate performance goals. In January 2007, the Compensation Committee, with input from other Board committees, evaluated corporate performance against the corporate performance goals and determined that corporate performance for 2006 was at 110% of target.
For 2006, the Compensation Committee considered that Fannie Mae, among other achievements:
  • made progress toward our stability goal by resolving outstanding investigations by governmental agencies;
  • achieved our restatement goal by filing our 2004Form 10-K and restating prior period financials;
  • successfully launched several major strategic business initiatives;
  • restructured several business functions, including technology and operations, to improve efficiency and generate cost savings;
  • made progress on building out controls and instilling operational discipline; and
  • met our housing goals in a difficult environment.
While the Compensation Committee assesses each goal separately, it does not follow a pre-established formula for assigning a weight to the corporate performance goals.
The Board (and, in the case of Mr. Mudd, the independent members of the Board) then determined, based on the recommendation of the Compensation Committee, the individual bonus amounts for each named executive based on the officer’s individual performance. These amounts are shown in the “Summary Compensation Table” under “Compensation Tables” below.
• Long-Term Incentive Awards.  Our compensation philosophy generally results in a greater portion of our named executives’ compensation being stock-based than at companies in our comparator group. For 2006 performance, the Board and the Compensation Committee determined that, in light of Fannie Mae’s not being a current SEC filer, long-term incentive awards would be in the form of restricted shares of Fannie Mae common stock or restricted stock units. In January 2007, the Board and the Compensation Committee approved awards with the values shown above in the table titled “Compensation Paid or Granted for 2006.” These awards vest in four equal annual installments beginning in January 2008.
Is there any regulatory oversight of our compensation process?
Yes, our regulator, OFHEO, has a role in the compensation of our named executives and certain other officers identified by OFHEO. As long as the Fannie Mae Capital Restoration Plan is in effect, we must obtain OFHEO approval for non-salary compensation actions that relate to this group of executives. In addition,

37
OFHEO must approve any termination benefits we wish to offer to this group of executives. We also notify OFHEO of all compensation programs intended primarily for executives.
What are our practices for determining when we grant equity awards?
All restricted stock or restricted stock unit awards to senior executives, including the named executives, are granted on the date of approval by the Board or Compensation Committee or, if later, on the date the executive commences employment with us. We made one exception to this practice, and that exception was designed to assure that the number of shares of restricted stock or units of restricted stock our executives received as an equity award in 2006 would be the smaller of two possible amounts. Specifically, in February 2006, the Board was aware that the report by Paul, Weiss, Rifkind, Wharton & Garrison LLP on the results of its review of Fannie Mae would be released in the near future. The ~~tables~~Board also was aware that, depending on ~~pages 24 to 26 profile~~the content of the report, its release could result in a change in the market value of Fannie Mae’s ~~compensation for~~stock. The Board therefore structured the annual awards of restricted stock and restricted stock units to senior executives in a manner that would ensure that senior executives would receive the appropriate value in shares. To accomplish this, each equity award was made in a dollar-denominated amount, with the number of shares or units granted equal to the smaller of two amounts: (1) the dollar amount of the award divided by the trading price of Fannie Mae’s common stock at the time the award was approved and (2) the dollar amount of the award divided by the average trading price during the five trading days following the filing of our nextForm 12b-25. Because theForm 12b-25 filing included a summary of the results of the report of Paul, Weiss report, our Board’s decision to defer the determination of the number of shares or units granted to our executives ensured that the results of the Paul, Weiss report would be publicly available prior to the date on which the applicable trading price of our common stock was determined.
Stock awards to employees below the level of Senior Vice President are allocated by the Chief Executive Officer pursuant to a delegation from the Compensation Committee. We are not currently granting stock options to employees and ~~its four~~do not expect to grant options before we become a current SEC filer.
What are our stock ownership requirements?
We encourage our directors, officers, and other ~~most highly compensated~~employees to own our common stock in order to align their interests with the interests of shareholders. We also require our officers above the level of vice president to own our common stock.
Our Chief Executive Officer is required to hold shares of our common stock with a value equal to five times his base salary. In addition, our Chief Executive Officer’s long-term incentive award for 2006 included a separate stock ownership requirement described above in footnote 2 to the “Compensation Paid or Granted for 2006” table. Our other named executives are required to hold our common stock with a value equal to three times base salary. Common stock held to meet the ownership requirements may be in the form of restricted stock, restricted stock units, or deferred shares.
Our Chief Executive Officer and other named executives have five years from the time of appointment to reach the required ownership level. In addition to our stock ownership requirements, our officers 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.
How and why have we changed our policy on perquisites?
Historically, we have provided a limited number of perquisites to our named executives, and in February 2007, we further limited the perquisites we provide. During 2006, Fannie Mae provided the named executives with perquisites that included a financial counseling benefit, personal use of certain of Fannie Mae’s cars and drivers, excess personal liability insurance, annual physical exams, executive ~~officers (the “covered executives”),~~life insurance, airline club memberships, and dining services, as well as taxgross-ups related to the excess personal liability and life insurance benefit. In addition, all members of our Board of Directors, including ~~salaries~~Mr. Mudd, participated in the Director’s Charitable Award program. We have also agreed to reimburse Mr. Mudd’s legal expenses incurred in connection with any subsequent negotiation, amendment, and ~~bonuses, option grants~~discussion of his employment agreement.

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In February 2007, we evaluated these perquisites and ~~exercises,~~eliminated the following:
  • reimbursement for financial counseling—effective July 1, 2007;
  • use of company transportation for any non-business purpose without reimbursement—effective January 1, 2007;
  • personal use of company-owned memberships at country clubs—effective January 1, 2008;
  • excess liability insurance—effective January 1, 2008 for all officers and March 1, 2007 for any person who became an officer on or after that date; and
  • the tax“gross-up” to cover taxes due on any excess liability insurance or life insurance that we provided to officers—effective January 1, 2008.
Our policy provides that perquisites should be based on business needs, and that existing perquisites should be evaluated from time to time and eliminated if no longer appropriate.
What decisions have we made with regard to our Performance Share Program?
Prior to 2005, we had a practice of granting awards under our performance share ~~awards. Awards made~~program, or PSP. These awards entitled executives to receive shares of common stock based upon our meeting corporate financial and qualitative performance objectives over three-year periods, or “performance cycles.” In early 2005, in light of our need to restate our financial results and our lack of current financial statements, our Board determined that it was not appropriate at that time to begin a new performance cycle under the PSP. For similar reasons, the Board did not begin a new performance cycle in 2006 and has not begun a new performance cycle in 2007.
Under our PSP, in January of each year the Compensation Committee generally determined our achievement of corporate performance objectives measured against the goals for the three-year performance cycle that ended in the prior year. The level of achievement determined the payout of the performance shares and the shares were paid out to executives in two annual installments. As of early 2005, we had paid the first installment, but not the second installment, of PSP awards for the2001-2003 performance cycle. For the reasons stated above, the Board determined in early 2005 to defer the payout of the second installment of the2001-2003 performance cycle and to defer the determination of the2002-2004 performance cycle.
After we restated our prior period financial statements and completed our 2004 financial statements, on February 15, 2007, our Board reviewed qualitative and quantitative analyses of our performance from 2001 to 2004. Based on these assessments, our Board determined that:
  • the first installment of shares that was paid in January 2004 exceeded the amount due for the 2001- 2003 performance cycle,
  • the unpaid second installment of the award for the2001-2003 performance cycle should not be paid, and
  • no payouts would be made under the2002-2004 performance cycle.
On June 15, 2007, our Board reviewed available quantitative and qualitative analyses of our performance from 2003 ~~are reported~~to 2006. Based on its review, the Board made a decision to pay awards for the2003-2005 performance cycle at 40% of the original target award and decided to pay awards for the2004-2006 performance cycle at 47.5% of the original target award. The highest level at which awards for these two cycles could have been paid if performance met or exceeded the maximum objectives was 150% of the original target award. These payouts reflect the Board’s determination that our performance during these cycles with respect to the financial goals did not meet threshold performance levels and our performance during these cycles with respect to the qualitative goals was between the threshold and target performance levels.
The table below shows the number of shares of common stock to which each named executive who was employed by Fannie Mae as ~~compensation for 2002.~~of December 31, 2006 is entitled based upon the Board’s final determination on September 18, 2007. The shares will be paid in the future.

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23
Performance Share Program Payouts

2003 to 2005
2004 to 2006
Performance Cycle Performance Cycle
Named Executive⁽¹⁾
Shares (#) Value ($)⁽²⁾ Shares (#) Value ($)⁽²⁾

Daniel Mudd 11,438 $ 786,363 15,960 $ 1,097,250
Robert Blakely⁽³⁾
— — — —
Robert Levin 9,994 687,088 15,184 1,043,900
Peter Niculescu 6,238 428,863 8,968 616,550
Beth Wilkinson⁽³⁾
— — — —
Michael Williams 8,806 605,413 11,150 766,563
⁽¹⁾ Information regarding PSP awards held by Ms. St. John is set forth in the “Outstanding Equity Awards at Fiscal Year-End” table under “Compensation Tables” below.
⁽²⁾ The value of the shares is based on the closing price of our common stock of $68.75 on June 15, 2007, the date of the Board’s determination.
⁽³⁾ Mr. Blakely and Ms. Wilkinson did not receive awards under the PSP because they joined Fannie Mae in 2006.
What is our compensation recoupment policy?
Under the OFHEO Consent Order, we have agreed that any new 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 has directed us to escrow such funds. In addition, we have agreed to include appropriate provisions in new employment agreements to address terminations for cause and recovery of compensation paid to executives where there are proven allegations of misconduct. All future employment agreements with named executives will contain these provisions.
What written agreements do we have with our named executives that provide for continued employment?
On November 15, 2005, we entered into an employment agreement with Mr. Mudd, effective June 1, 2005 when he was appointed our President and Chief Executive Officer. We entered into a letter agreement with Mr. Levin, dated June 19, 1990, that provides for severance in connection with a termination without “cause.” The severance benefits provided under these agreements are described below under “Compensation Tables—Potential Payments Upon Termination orChange-in-Control.”

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Report of the Compensation Committee of the Board of Directors
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis 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 Fannie Mae’s proxy statement for the 2007 annual meeting of shareholders, as filed with the Securities and Exchange Commission on Schedule 14A.
The Compensation Committee
Bridget A. Macaskill, Chair
Stephen B. Ashley
Dennis R. Beresford (committee member from May 2006 to July 2007)
Louis J. Freeh (committee member since May 2007)
Brenda J. Gaines
Greg C. Smith

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Compensation Tables
Summary Compensation Table for 2006
The following table shows summary compensation information for the ~~compensation of the covered~~named executives for ~~2002, 2001, and 2000.~~

Long Term Compensation


Annual Compensation (1)

Awards

Payouts

Name and Principal Position

Year

Salary ($)

Bonus ($)

Other
Annual Compensation ($)

Restricted Stock Award(s) (2) ($)

Securities Underlying Options/ SARs
(#)

LTIP Payouts ($)

All
Other Compensation (3) ($)
Franklin D. Raines

2002

$
992,250

$
3,300,000

$
78,692


—

311,731

$
7,233,679

$
24,248
Chairman of the Board

2001

992,250

3,125,650


3,085


—

277,335

6,803,068


25,215
and Chief Executive

2000

992,250

2,480,625


2,907


—

421,358

4,588,616


41,351
Officer

Daniel H. Mudd

2002

689,124

911,250


1,358


—

82,918

2,339,702


9,569
Vice Chairman of the

2001

656,429

1,083,109


1,320


—

87,194

1,188,846


8,412
Board and Chief Operating Officer

2000

537,063

735,130


265,052

$
1,319,533

321,295

414,090


342,796
Jamie S. Gorelick (4)

2002

689,124

911,250


1,583


—

—

3,049,012


15,589
Vice Chair of the Board

2001

656,429

1,083,109


1,837


—

87,194

2,791,087


15,420

2000

625,170

859,609


1,819


—

186,517

2,458,528


22,015
Timothy Howard

2002

498,614

781,250


1,169


—

81,661

1,947,368


12,213
Executive Vice

2001

463,315

694,983


1,103


—

75,617

1,987,119


12,150
President and Chief

2000

435,540

544,425


1,126


—

129,142

2,088,542


18,543
Financial Officer

Robert J. Levin

2002

480,092

575,000


950


—

72,445

1,947,368


9,811
Executive Vice

2001

457,317

686,028


994


—

44,735

1,987,119


9,373
President—Housing &

2000

435,540

544,425


1,043


—

100,002

2,088,542


12,877
Community Development

~~Notes to Summary Compensation Table~~
2006.

Change in

Pension Value

and

Non-Equity
Nonqualified

Stock
Option
Incentive Plan
Deferred
All Other

Name and Principal
Salary
Bonus
Awards
Awards
Compensation
Compensation
Compensation
Total
Position
Year ($)⁽¹⁾ ($)⁽²⁾ ($)⁽³⁾ ($)⁽⁴⁾ ($)⁽²⁾ Earnings ($)⁽⁵⁾ ($)⁽⁶⁾ ($)

Daniel Mudd 2006 $ 950,000 — $ 4,799,057 $ 962,112 $ 3,500,000 $ 932,958 $ 136,072 $ 11,280,199
President and Chief Executive Officer
Robert Blakely 2006 587,500 $ 926,250 3,898,589 — 364,325 209,087 140,480 6,126,231
Executive Vice President and Chief Financial Officer
Robert Levin 2006 750,000 — 2,477,097 883,442 2,087,250 307,078 70,710 6,575,577
Executive Vice President, Chief Business Officer and former Chief Financial Officer
Peter Niculescu 2006 538,188 — 1,388,328 533,816 1,029,060 232,562 39,906 3,761,860
Executive Vice President—Capital Markets
Beth Wilkinson 2006 490,961 1,748,750 396,712 — 199,238 198,413 35,578 3,069,652
Executive Vice President, General Counsel and Corporate Secretary
Michael Williams 2006 650,000 — 1,808,182 701,446 1,630,200 371,753 69,482 5,231,063
Executive Vice President and Chief Operating Officer
Julie St. John⁽⁷⁾
2006 536,618 — 1,514,019 744,008 — 936,773 1,841,777 5,573,195
Former Executive Vice President and Chief Information Officer
⁽¹⁾ Mr. Mudd is entitled to a minimum base salary of $950,000 under his employment agreement. “Salary” for Mr. Blakely includes $275,000 he elected to defer to later years.

~~“Salary” includes~~⁽²⁾ Except as otherwise noted, amounts reported in the “Bonus” column do not include amounts earned under our annual ~~salary~~incentive plan, which are shown in the “Non-Equity Incentive Plan Compensation” column. In 2007, Mr. Blakely was awarded a total bonus of $1,290,575 under our annual incentive plan, which he deferred to later years. Of this amount, we guaranteed him in connection with his joining Fannie Mae a minimum bonus of $926,250 for 2006, which we have reported in the “Bonus” ~~includes~~column. Ms. Wilkinson was awarded a total bonus of $1,147,988 under our annual incentive plan for 2007. Of this amount, Ms. Wilkinson was guaranteed to receive $948,750 in connection with her joining Fannie Mae. We have reported the guaranteed amount, along with an $800,000 sign-on bonus Ms. Wilkinson received, in the “Bonus” column.
⁽³⁾ These amounts ~~accrued under~~represent the ~~Annual Incentive Plan~~dollar amounts we recognized for financial statement reporting purposes with respect to 2006 for the fair value of restricted stock, restricted stock units, and performance shares granted during 2006 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 and do not reflect the impact of Ms. St. John’s actual forfeiture of 27,931 shares of restricted stock and performance shares upon her departure from Fannie Mae in December 2006. As a result of the Board’s decision to pay out awards at 40% for ~~2001,~~the 2003-2005 performance cycle and at 47.5% for the 2004-2006 performance cycle, we reversed expenses we previously recorded based on our estimate that awards would be paid out at 50%. To the extent these 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 ~~shares~~ the ~~covered executives~~three-times cap based on a Black-Scholes option pricing model.

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⁽⁴⁾ These amounts represent the dollar amounts we recognized for financial statement reporting purposes with respect to 2006 for the fair value of stock option awards granted during 2004 and in prior years in accordance with SFAS 123R. No named executive has received a stock option award since January 2004. 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, 2006.
⁽⁵⁾ The reported amounts represent change in pension value.
⁽⁶⁾ The table below shows more information about the components of the “All Other Compensation” column. The Charitable Award Program amounts reflect a matching contribution program under which an employee who contributes at certain levels to the ~~2001 Special~~Fannie Mae Political Action Committee may direct that an equal amount, up to $5,000, be donated by Fannie Mae to charities chosen by the employee in the employee’s name. Mr. Mudd’s “Charitable Award ~~Program. “Other Annual~~Program” amount consists of $5,000 under this matching program plus $15,447 for our incremental cost of his participation in our charitable award program for directors, which is described below under “Director Compensation Information.” We calculated our incremental cost of each director’s participation in our charitable award program for directors based on (1) the present value of our expected future payment of the benefit that became vested during 2006, and (2) the time value during 2006 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 5.5%. Ms. St. John’s “Payments in Connection with Termination of Employment” shown in the table below consist of: $794,463 in severance payments, $943,035 in a 2006 annual incentive plan cash bonus award, and $18,000 for outplacement services. Under the terms of her separation agreement, Ms. St. John received a bonus equal to a prorated share of her target bonus adjusted for corporate performance. In addition to the amounts shown in the “Certain Components of All Other Compensation” ~~for~~table below, Mr. ~~Raines in 2002~~Williams’ “All Other Compensation” includes ~~$37,225 for~~our incremental cost of providing tax counseling, ~~and~~ financial planning services, and $38,307 for the personal use of company transportation that has been imputed to Mr. Raines as income for tax purposes. For Mr. Mudd, “Other Annual Compensation” in 2000 includes $264,565 for reimbursement of taxes in connection with his relocation from Tokyo, Japan to Washington, D.C.
~~(2)~~ Because restricted common stock is held in escrow until vested, as of December 31, 2002, Equiserve Trust Company, N.A., acting as escrow agent, held 15,000 shares of unvested restricted common stock for Mr. Mudd, subject to a vesting schedule through February 2005 with an aggregate value of $964,950. Dividends are paid on restricted common stock at the same rate as the dividends paid on Fannie Mae’s common stock.
~~(3)~~ ~~“All Other Compensation” for each covered executive in 2002 includes a $6,000 employer matching contribution~~dining services. Amounts shown under the Retirement Savings Plan for Employees. “All OtherCompensation” for 2002 also includes an amount allocated to the premiums paid by Fannie Mae for the term life portion of split-dollar life insurance coverage and an amount equal to the estimated value of the total premiums paid by Fannie Mae for the split-dollar insurance coverage, as follows: Mr. Raines, $2,144 and $14,247; Mr. Mudd, $744 and $1,850; Ms. Gorelick, $1,254 and $7,360; Mr. Howard, $630 and $4,608; and Mr. Levin, $364 and $2,472. Each Fannie Mae officer (other than Mr. Raines, Mr. Mudd, and Ms. Gorelick) has coverage based on annual salary. The coverage for Mr. Raines, Mr. Mudd, and Ms. Gorelick each equals approximately two times salary. Fannie Mae also has provided to Mr. Raines an additional term life insurance benefit in the amount of $900,000, with an annual premium allocated to Mr. Raines of $882. “All Other Compensation” ~~also includes premiums of $975 paid on behalf of each covered executive in 2002 for excess liability insurance coverage. For Mr. Mudd,~~do not include gifts made by the ~~2000 amount includes $340,164 for hiring costs and reimbursement of expenses in connection with his relocation from Tokyo, Japan to Washington, D.C.~~
~~(4)~~ ~~As announced by~~ Fannie Mae ~~on January 10, 2003, Ms. Gorelick will leave~~Foundation under its matching gifts program, under which gifts made by our employees and directors to 501(c)(3) charities are matched, up to an aggregate total of $10,500 in any calendar year. No amounts are included for this program because the matching gifts are made by the Fannie Mae ~~on June 30, 2003.~~Foundation, not Fannie Mae.
          Certain Components of “All Other Compensation” for 2006

Universal
Universal
Excess
Excess
Payments in
401(k)
Life
Life
Liability
Liability
Connection
Plan
Insurance
Insurance
Insurance
Insurance
Charitable
with
Matching
Coverage
Tax
Coverage
Tax
Award
Termination
Executive
Contributions Premiums Gross-up Premiums Gross-up Programs of Employment

Daniel Mudd $ 6,600 $ 58,650 $ 48,278 $ 1,150 $ 947 $ 20,447 —
Robert Blakely — 86,709 46,998 1,150 623 5,000 —
Robert Levin 6,600 31,715 25,326 1,150 918 5,000 —
Peter Niculescu 6,600 18,101 13,216 1,150 840 — —
Beth Wilkinson 6,600 14,400 7,805 1,150 623 5,000 —
Michael Williams 6,600 23,304 18,610 1,150 918 5,000 —
Julie St. John 6,600 39,921 32,861 1,150 947 4,800 1,755,498
⁽⁷⁾ Ms. St. John entered into a separation agreement with us in July 2006, and she retired from Fannie Mae in December 2006. Her separation benefits were provided pursuant to the Board-approved management severance program and were approved by OFHEO.

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24
~~Options~~ Grants of Plan-Based Awards in ~~Last Fiscal Year~~2006
The following table shows grants of awards made under our Annual Incentive Plan and the 2003 Plan to the named executives during 2006.

Estimated Possible Payouts
All Other Stock

Under Non-Equity
Awards:
Grant Date Fair
Incentive Plan
Number of
Value of Stock
Award Approval
Awards⁽²⁾ Shares of Stock
and Option
Name
Grant Date⁽¹⁾ Date⁽¹⁾ Target ($) or Units (#)⁽³⁾ Awards ($)⁽⁴⁾

Daniel Mudd 3/22/2006 2/8/2006 146,574 $ 7,905,469
$ 2,612,500
Robert Blakely 1/30/2006 11/8/2005 10,000 575,600
3/22/2006 2/8/2006 61,611 3,322,989
1,235,000
Robert Levin 3/22/2006 2/8/2006 78,257 4,220,791
1,650,000
Peter Niculescu 3/22/2006 2/8/2006 32,948 1,777,050
890,961
Beth Wilkinson 2/16/2006 12/19/2005 25,000 1,365,375
948,750
Michael Williams 3/22/2006 2/8/2006 61,611 3,322,989
1,235,000
Julie St. John 3/22/2006 2/8/2006 21,679 1,169,257
873,909
⁽¹⁾ The “Grant Date” column shows the grant date for equity awards determined for financial statement reporting purposes pursuant to SFAS 123R. The “Award Approval Date” column shows the date our Board approved the equity awards. On February 8, 2006, our Board approved restricted stock and restricted stock unit awards for which the final number of shares could not be determined until March 22, 2006, which is the grant date for these awards. These grants are discussed in more detail above in “Compensation Discussion and Analysis—What are our practices for determining when we grant equity awards?” The other equity awards listed in the table above reflect a grant date equal to the executive’s starting date with Fannie Mae.
⁽²⁾ The amounts shown are the target amounts established by our Board for 2006 performance under our Annual Incentive Plan. The amount paid to a named executive is based on Fannie Mae’s and the individual’s performance against corporate and individual pre-established goals. Our Board and Compensation Committee also retain discretion to pay bonuses in amounts below or above the amount derived from measuring performance against corporate and individual goals. It is expected that performance against corporate goals will normally be in the range of 75% to 125% of target. For 2006, the Board determined that corporate performance was 110% of the corporate target. Based on a combination of 2006 corporate and individual performance, Mr. Mudd received a bonus of 134% of his target, Mr. Blakely a bonus of 105% of his target, Mr. Levin a bonus of 127% of his target, Mr. Niculescu a bonus of 116% of his target, Ms. Wilkinson a bonus of 121% of her target, and Mr. Williams a bonus of 132% of his target. Ms. St. John received a prorated bonus based on 110% of her target under the terms of her separation agreement based solely on corporate performance. The amounts actually awarded are reported as “Bonus” and “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table, as explained in footnote 2 to that table.
⁽³⁾ Consists of restricted stock or restricted stock units awarded under the 2003 Plan. The amounts shown for Messrs. Mudd, Levin, Niculescu, and Williams represent stock that vests in four equal annual installments beginning in March 2007. Similarly, Ms. St. John received restricted stock that would have vested in the same manner. However, upon her retirement, Ms. St. John received accelerated vesting of the first installment of these shares, and forfeited the balance of these shares. The amount shown for Ms. Wilkinson represents stock that vests in three equal annual installments beginning in February 2007. As the holder of restricted stock the named executive has the rights and privileges of a shareholder as to the restricted common 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.
For Mr. Blakely, the amounts shown are restricted stock units, which represent the right to receive a share of unrestricted common stock for each unit upon vesting. The grant of 10,000 units vests in three equal annual installments beginning in January 2007 and the grant of 61,611 units vests in four equal annual installments beginning in March 2007. Because he is already 65, Mr. Blakely’s restricted stock units will vest fully upon his retirement from Fannie Mae. As the holder of restricted stock units, Mr. Blakely receives dividend equivalents on the units, but does not have the right to vote, sell or otherwise transfer the stock represented by the units until the restrictions lapse and shares are issued.

44
⁽⁴⁾ The SFAS 123R grant date fair value of restricted stock and restricted stock unit awards is calculated as the average of the high and low trading price of our common stock on the date of grant.
Outstanding Equity Awards at 2006 Fiscal Year-End
The following table shows outstanding stock option ~~grants for 2002 to~~awards, unvested restricted stock, restricted stock unit awards and performance share program awards held by the ~~covered executives. These options represent part~~named executives as of ~~Fannie Mae’s variable long-term~~December 31, 2006. The market value of option and stock awards ~~program for its officers, which also includes performance shares as described below~~shown in the ~~Long-Term Incentive Plan Awards Table. The value~~table below is based on a per share price of ~~stock options depends upon a long-term increase in~~$59.39, which was the closing market price of ~~the~~our common ~~stock. If the~~ stock ~~price does not increase, the options will be worthless; if the stock price does increase, the increase will benefit all shareholders.~~on December 29, 2006.

Stock Awards⁽²⁾
Equity
Equity
Incentive
Incentive
Plan
Plan
Awards:
Awards:
Market or
Number of
Payout
Market
Unearned
Value of
Option Awards⁽²⁾ Number of
Value of
Shares,
Unearned
Number of
Number of
Shares or
Shares or
Units or
Shares,
Securities
Securities
Units of
Units of
Other
Units or Other
Underlying
Underlying
Option
Stock That
Stock That
Rights That
Rights That
Grant Date or
Unexercised
Unexercised
Exercise
Option
Have Not
Have Not
Have Not
Have Not
Award
Performance
Options (#)
Options (#)
Price
Expiration
Vested
Vested
Vested
Vested
Name
Type⁽¹⁾ Period Exercisable Unexercisable ($) Date (#) ($) (#)⁽³⁾ ($)⁽³⁾

Daniel Mudd O 2/23/2000 114,855 52.78 2/23/2010
O 2/23/2000 116,710 ⁽⁴⁾ 52.78 1/18/2010
O 11/21/2000 89,730 77.10 11/21/2010
O 11/20/2001 87,194 80.95 11/20/2011
O 1/21/2003 62,188 20,730 69.43 1/21/2013
O 1/23/2004 52,874 52,875 78.32 1/23/2014
RSU 3/10/2005 63,806⁽⁵⁾ 3,789,438
RS 11/15/2005 21,178⁽⁶⁾ 1,257,761
RS 3/22/2006 146,574⁽⁷⁾ 8,705,030
PSP 1/1/2001 to 30,045⁽⁸⁾ $1,784,373⁽⁸⁾
12/31/2003
PSP 1/1/2002 to 15,149⁽⁹⁾ 899,699⁽⁹⁾
12/31/2004
PSP 1/1/2003 to 11,438⁽¹⁰⁾ 679,303⁽¹⁰⁾
12/31/2005
PSP 1/1/2004 to 33,599⁽¹¹⁾ 1,995,445⁽¹¹⁾
12/31/2006

Robert Blakely RSU 1/30/2006 10,000⁽⁵⁾ 593,900
RSU 3/22/2006 61,611⁽⁷⁾ 3,659,077

Robert Levin O 11/18/1997 46,110 51.72 11/16/2007
O 11/17/1998 43,650 69.31 11/17/2008
O 11/16/1999 47,300 71.50 11/16/2009
O 1/18/2000 56,572 ⁽⁴⁾ 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 54,333 18,112 69.43 1/21/2013
O 1/23/2004 50,306 50,307 78.32 1/23/2014
RS 1/23/2004 1,460 86,709
RS 3/10/2005 36,099⁽⁵⁾ 2,143,920
RS 3/22/2006 78,257⁽⁷⁾ 4,647,683
PSP 1/1/2001 to 14,543⁽⁸⁾ 863,709⁽⁸⁾
12/31/2003
PSP 1/1/2002 to 7,772⁽⁹⁾ 461,579⁽⁹⁾
12/31/2004
PSP 1/1/2003 to 9,994⁽¹⁰⁾ 593,544⁽¹⁰⁾
12/31/2005
PSP 1/1/2004 to 31,967⁽¹¹⁾ 1,898,520⁽¹¹⁾
12/31/2006

45

Individual Grants

Name

Number of Securities Underlying Options Granted (1)

% of Total Options Granted to Employees for 2002 (1)

Exercise or
Base Price
($/Sh)

Expiration Date

Grant Date Present Value (2)
($)
Franklin D. Raines

311,731

8.27
%

$
69.43

1/21/13

$
6,680,395
Daniel H. Mudd

82,918

2.20
%


69.43

1/21/13


1,776,933
Jamie S. Gorelick (3)

—

—



—

—


—
Timothy Howard

81,661

2.17
%


69.43

1/21/13


1,749,995
Robert J. Levin

72,445

1.92
%


69.43

1/21/13


1,552,496
~~Notes to Option Grants Table~~

Stock Awards⁽²⁾
Equity
Equity
Incentive
Incentive
Plan
Plan
Awards:
Awards:
Market or
Number of
Payout
Market
Unearned
Value of
Option Awards⁽²⁾ Number of
Value of
Shares,
Unearned
Number of
Number of
Shares or
Shares or
Units or
Shares,
Securities
Securities
Units of
Units of
Other
Units or Other
Underlying
Underlying
Option
Stock That
Stock That
Rights That
Rights That
Grant Date or
Unexercised
Unexercised
Exercise
Option
Have Not
Have Not
Have Not
Have Not
Award
Performance
Options (#)
Options (#)
Price
Expiration
Vested
Vested
Vested
Vested
Name
Type⁽¹⁾ Period Exercisable Unexercisable ($) Date (#) ($) (#)⁽³⁾ ($)⁽³⁾

Peter Niculescu O 3/8/1999 16,000 70.72 3/6/2009
O 11/16/1999 14,340 71.50 11/16/2009
O 1/18/2000 24,804 ⁽⁴⁾ 62.50 1/18/2010
O 11/21/2000 12,120 77.10 11/21/2010
O 11/20/2001 13,150 80.95 11/20/2011
O 1/21/2003 33,912 11,305 69.43 1/21/2013
O 1/21/2003 7,288 ⁽⁴⁾ 69.43 1/18/2010
O 1/23/2004 29,712 29,713 78.32 1/23/2014
RS 3/10/2005 23,032⁽⁵⁾ 1,367,870
RS 3/22/2006 32,948⁽⁷⁾ 1,956,782
PSP 1/1/2001 to 4,298⁽⁸⁾ 255,258⁽⁸⁾
12/31/2003
PSP 1/1/2002 to 2,272⁽⁹⁾ 134,934⁽⁹⁾
12/31/2004
PSP 1/1/2003 to 6,238⁽¹⁰⁾ 370,475⁽¹⁰⁾
12/31/2005
PSP 1/1/2004 to 18,881⁽¹¹⁾ 1,121,343⁽¹¹⁾
12/31/2006

Beth Wilkinson RS 2/16/2006 25,000⁽⁵⁾ 1,484,750

Michael Williams O 11/18/1997 11,920 51.72 11/16/2007
O 11/17/1998 11,390 69.31 11/17/2008
O 11/16/1999 12,290 71.50 11/16/2009
O 1/18/2000 20,027 ⁽⁴⁾ 62.50 1/18/2010
O 11/21/2000 35,610 77.10 11/21/2010
O 1/16/2001 13,087 ⁽⁴⁾ 78.56 1/18/2010
O 11/20/2001 44,735 80.95 11/20/2011
O 1/21/2003 47,877 15,959 69.43 1/21/2013
O 1/23/2004 36,940 36,940 78.32 1/23/2014
RS 3/10/2005 25,342⁽⁵⁾ 1,505,061
RS 3/22/2006 61,611⁽⁷⁾ 3,659,077
PSP 1/1/2001 to 11,925⁽⁸⁾ 708,226⁽⁸⁾
12/31/2003
PSP 1/1/2002 to 7,772⁽⁹⁾ 461,579⁽⁹⁾
12/31/2004
PSP 1/1/2003 to 8,806⁽¹⁰⁾ 522,988⁽¹⁰⁾
12/31/2005
PSP 1/1/2004 to 23,473⁽¹¹⁾ 1,394,061⁽¹¹⁾
12/31/2006

46

Stock Awards⁽²⁾
Equity
Equity
Incentive
Incentive
Plan
Plan
Awards:
Awards:
Market or
Number of
Payout
Market
Unearned
Value of
Option Awards⁽²⁾ Number of
Value of
Shares,
Unearned
Number of
Number of
Shares or
Shares or
Units or
Shares,
Securities
Securities
Units of
Units of
Other
Units or Other
Underlying
Underlying
Option
Stock That
Stock That
Rights That
Rights That
Grant Date or
Unexercised
Unexercised
Exercise
Option
Have Not
Have Not
Have Not
Have Not
Award
Performance
Options (#)
Options (#)
Price
Expiration
Vested
Vested
Vested
Vested
Name
Type⁽¹⁾ Period Exercisable Unexercisable ($) Date (#) ($) (#)⁽³⁾ ($)⁽³⁾

Julie St. John O 11/18/1997 11,610 51.72 11/16/2007
O 11/17/1998 11,390 69.31 11/17/2008
O 11/16/1999 11,680 71.50 11/16/2009
O 1/18/2000 18,373 ⁽⁴⁾ 62.50 1/18/2010
O 11/21/2000 35,610 77.10 11/21/2010
O 1/16/2001 17,320 ⁽⁴⁾ 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 55,410 78.32 1/23/2014
PSP 1/1/2001 to 11,925⁽⁸⁾ 708,226⁽⁸⁾
12/31/2003
PSP 1/1/2002 to 7,772⁽⁹⁾ 461,579⁽⁹⁾
12/31/2004
PSP 1/1/2003 to 8,806⁽¹⁰⁾ 522,988⁽¹⁰⁾
12/31/2005
PSP 1/1/2004 to 23,147⁽¹¹⁾ 1,374,700⁽¹¹⁾
12/31/2006
⁽¹⁾ O indicates stock options; RS indicates restricted stock; RSU indicates restricted stock units; and PSP indicates performance share program awards.

~~Includes~~⁽²⁾ Except as otherwise indicated, all awards of options, ~~granted on January 21, 2003. Options~~restricted stock, and restricted stock units listed in this table vest ~~25 percent per year~~in four equal annual installments beginning on the first anniversary of the ~~grant~~ date ~~or upon~~of grant. Amounts reported in this table for restricted stock and restricted stock units represent only the ~~optionee’s retirement (at age 65 or later),~~unvested portion of awards. Amounts reported in this table for options represent only the unexercised portions of awards.
⁽³⁾ As described in “Compensation Discussion and Analysis,” beginning in early ~~retirement (from age 60 to 64, with at least five years~~2005 the Board deferred the determination of ~~service), total disability, or death, and~~whether outstanding awards under our performance share program were earned, because we did not have reliable financial data for the relevant performance cycles.
⁽⁴⁾ The stock options vested 100% on January 23, 2004.
⁽⁵⁾ The initial award amount vests in ~~certain cases upon a change in control, and expire ten years after~~three equal annual installments beginning on the first anniversary of the date of grant.
⁽⁶⁾ The ~~options granted~~initial award amount vests in three equal annual installments beginning on March 10, 2006.
⁽⁷⁾ 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, each of our named executives other than Mr. Mudd also received a cash award payable in four equal annual installments beginning on January 24, 2007. As of December 31, 2006, the unpaid portion of our named executives’ cash awards were as follows: Mr. Blakely and Mr. Williams, $1,656,270; Mr. Levin, $2,103,750; and Mr. Niculescu, $885,720.
⁽⁸⁾ The amounts shown represent the maximum amount of common stock that the Board could have awarded as of the end of 2006 for the2001-2003 performance cycle, which equals the second installment of the awards the Compensation Committee determined performance for in January 2004. As described in “Compensation Discussion and Analysis,” the Board determined in February 2007 not to ~~officers at~~pay any of these shares.
⁽⁹⁾ The amounts shown represent the amount of common stock that would have been paid if the Compensation Committee had determined that we met threshold performance levels with respect to financial and ~~above~~qualitative goals for this performance cycle. As described in “Compensation Discussion and Analysis,” the Board determined in February 2007 not to pay any of these shares.
⁽¹⁰⁾ As described in “Compensation Discussion and Analysis,” the Board determined in June 2007 that our performance during this cycle did not meet the threshold performance level ~~of executive vice president~~for the financial goal and was between the threshold and target performance levels for the qualitative goals. In accordance with SEC rules, because the payment amounts determined by the Board are ~~subject to accelerated vesting under certain circumstances. Mr. Raines generally will~~the amounts that would have been paid if our performance had met threshold goals, we have shown these amounts in the ~~right to exercise any vested nonqualified stock option, whenever granted, until it expires by its terms, regardless of whether he is a Fannie Mae employee.~~table.
47

~~(2)~~ ~~The “Grant Date Present Value” numbers in the table were derived by application of a variation of the Black-Scholes option pricingmodel. The following assumptions were used in the model:~~
~~an exercise price on the option equal to the fair market value of the underlying stock on the date of grant;~~
~~an option term of ten years and an interest rate of 3.97 percent, which represents the interest rate on a U.S. Treasury security with a maturity date corresponding to that of the option term;~~
~~volatility of 31.87 percent, calculated using 5-year weekly volatility prior to the grant date; and~~
current dividends at the rate of $1.56 per share, representing the annualized dividends paid with respect to a share of common stock and representing a constant percentage of 2.25 percent at the date of grant.
~~(3)~~⁽¹¹⁾ As ~~announced~~described in “Compensation Discussion and Analysis,” the Board determined in June 2007 that our performance during this cycle did not meet the threshold performance level for the financial goal and was between the threshold and target performance levels for the qualitative goals. In accordance with SEC rules, because the payment amounts determined by ~~Fannie Mae on January 10, 2003, Ms. Gorelick will leave Fannie Mae on June 30, 2003.~~the Board exceed the amounts that would have been paid if our performance had met threshold goals, we have shown in this table the amount of common stock that would have been paid if our performance had met target levels.
25
~~Aggregated~~ Option Exercises and Stock Vested in ~~Last Fiscal Year and Fiscal Year End Option Values~~2006
The following table shows information regarding stock option exercises by and vesting of restricted stock and restricted stock unit awards held by the ~~aggregate number of shares underlying options exercised in 2002 and the value at year-end of outstanding options, whether or not exercisable.~~
Name

Shares
Acquired
on Exercise
(#)

Value
Realized (1)
($)

Number of
Securities Underlying
Unexercised Options
December 31, 2002
Exercisable/
Unexercisable
(#)

Value of Unexercised
In-the-Money Options
December 31, 2002 (2)
Exercisable/
Unexercisable
($)

Franklin D. Raines

—

$
—

1,000,630  /  618,843

$
1,441,600  /   $390,793

Daniel H. Mudd

—


—

124,090  /  284,399


663,207  /  2,011,068

Jamie S. Gorelick

—


—

296,110  /  227,281


1,661,516  /     177,120

Timothy Howard

20,000


1,246,362

408,624  /  161,395


9,899,535  /     103,527

Robert J. Levin

20,900


1,025,314

386,333  /  123,664


9,899,535  /     103,527

~~Notes to Option Exercises/Year End Values~~
named executives during 2006.

Option Awards Stock Awards
Number of
Number of

Shares Acquired on
Value Realized on
Shares Acquired on
Value Realized on
Name
Exercise (#) Exercise ($)⁽¹⁾ Vesting (#) Vesting ($)⁽²⁾

Daniel Mudd — — 31,904 $ 1,717,392
— — 10,588 569,952
Robert Blakely — — — —
Robert Levin — — 730 38,734
— — 18,050 971,632
30,680 $ 566,736 — —
Peter Niculescu — — 11,516 619,906
— — 1,000 57,900
Beth Wilkinson — — — —
Michael Williams — — 12,671 682,080
13,310 245,869 — —
Julie St. John 12,430 234,399 — —
— — 11,516 619,906
— — 11,516 692,342
— — 5,419 325,790
~~(1)~~ ~~“Value Realized” is the difference between the~~
⁽¹⁾ The value realized on exercise ~~price and the market price on the exercise date, multiplied~~has been determined by multiplying the number of ~~options exercised. “Value Realized” numbers do not necessarily reflect what the executive might receive when he or she sells the~~ shares ~~acquired by the option exercise, since the market price of the shares at the time of sale may be higher or lower than the price on the exercise date of the option.~~
~~(2)~~ ~~“Value of Unexercised In-the-Money Options” is the aggregate, calculated on a grant by grant basis, of the product of the number of unexercised options at the end of 2002 multiplied~~exercised by the difference between the ~~exercise price for the grant and the year-end~~fair market ~~price ($64.33), excluding grants for which the difference is equal to or less than zero.~~
~~Long-Term Incentive Plan Awards Table~~

Performance or Other
Period Until
Maturation or Payout

Estimated Future Payouts Under
Non-Stock Price Based Plans
Name

Number of Performance
Shares (1)
(#)

Award Cycle

Payout Period
(if any)

Threshold
(#)

Target
(#)

Maximum
(#)
Franklin D. Raines

107,505

2003-2005

2006, 2007

43,002

107,505

161,258
Daniel H. Mudd

28,596

2003-2005

2006, 2007

11,438

28,596

42,894
Jamie S. Gorelick (2)

—

—

—

—

—

—
Timothy Howard

28,162

2003-2005

2006, 2007

11,265

28,162

42,243
Robert J. Levin

24,984

2003-2005

2006, 2007

9,994

24,984

37,476
~~Notes to Long-Term Incentive Plan Awards Table~~
~~(1)~~ Contingent grants of performance shares were made as part of Fannie Mae’s variable long-term awards program on January 21, 2003 for the 2003-2005 cycle, for which distributions will be made in 2006 and 2007. Actual awards range from 40 percent to 150 percent of a participant’s performance shares based on equally weighted goals for growth in EPS and performance in strategic areas. If Fannie Mae does not meet the requirement to achieve 40 percent awards, no award will be paid. The value of ~~an actual award depends on the level of achievement and thevalue of Fannie Mae’s~~our common stock at the ~~end~~time of exercise and the per share exercise price of the ~~cycle.~~ options.
⁽²⁾ The ~~fair~~ value realized on vesting has been determined by multiplying the number of ~~a performance share for the 2003-2005 cycle is subject to a limit~~shares of ~~three times~~stock or units by the fair market value of ~~Fannie Mae’s common stock on January 21, 2003, the date of grant. The fair market value of Fannie Mae’s~~our common stock on the ~~date of grant was $69.43.~~vesting date.
~~(2)~~ ~~As announced by Fannie Mae on January 10, 2003, Ms. Gorelick will leave Fannie Mae on June 30, 2003~~
26
~~Fannie Mae~~ Pension Benefits
The table below sets forth information on the pension benefits for the named executives under each of the pension plans described below.
Retirement ~~Plans~~
~~Fannie Mae Retirement Plan~~Plan.
The Federal National Mortgage Association Retirement Plan for Employees Not Covered Under Civil Service Retirement Law, ~~(the “Fannie Mae~~which we refer to as the Retirement ~~Plan”)~~Plan, provides benefits for those eligible employees, including the named executives, who are not covered by the federal Civil Service retirement law. 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. ~~In addition, the Fannie Mae Retirement Plan is coordinated with Social Security Covered Compensation as defined in Internal Revenue Service regulations.~~ 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 ~~2002,~~2006, the statutory compensation and benefit caps were ~~$200,000~~$220,000 and ~~$160,000, respectively, and they remain unchanged for 2003.~~$175,000, 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.

48
~~The covered executives have approximately the following years of credited service: Mr. Levin, 22 years; Mr. Howard, 21 years; Mr. Raines, 11 years; Ms. Gorelick, 6 years; and Mr. Mudd, 3 years.~~
~~The benefits under the Fannie Mae Retirement Plan are not subject to deductions for social security benefits or other offset amounts.~~
~~Supplemental Pension Plans~~
Fannie Mae adopted the Supplemental Pension Plan to provide supplemental retirement benefits to employees who do not participate in the Executive Pension Plan and whose salary exceeds the statutory compensation cap applicable to the Fannie Mae Retirement Plan or whose benefit under the Fannie Mae Retirement Plan is limited by the statutory benefit cap applicable to that Plan. Fannie Mae adopted the 2003 Supplemental Pension Plan to provide similar additional benefits to Fannie Mae officers based on the annual cash bonus received by an officer, but limited to 50 percent of the officer’s salary.
~~The benefits under the Fannie Mae supplemental pension plans are not subject to deductions for social security benefits or other offset amounts.~~
The following table shows the estimated annual benefits that are payable under the Fannie Mae Retirement Plan and, if applicable, the supplemental pension plans to an employee who does not participate in the Executive Pension Plan and who turned 65 and retired on January 1, 2003, using years of service accrued through January 1, 2003.
~~Fannie Mae Retirement Plan and Supplemental Pension Plans~~
Final Average Annual Earnings

Estimated Annual Pension for Representative Years of Service

10

15

20

25

30

35
$
50,000

$
7,802

$
11,883

$
16,688

$
21,493

$
26,298

$
31,103

100,000


17,802


26,883


36,688


46,493


56,298


66,103

150,000


27,802


41,883


56,688


71,493


86,298


101,103

200,000


37,802


56,883


76,688


96,493


116,298


136,103

250,000


47,802


71,883


96,688


121,493


146,298


171,103

300,000


57,802


86,883


116,688


146,493


176,298


206,103

350,000


67,802


101,883


136,688


171,493


206,298


241,103

400,000


77,802


116,883


156,688


196,493


236,298


276,103

450,000


87,802


131,883


176,688


221,493


266,298


311,103

500,000


97,802


146,883


196,688


246,493


296,298


346,103

550,000


107,802


161,883


216,688


271,493


326,298


381,103

600,000


117,802


176,883


236,688


296,493


356,298


416,103

650,000


127,802


191,883


256,688


321,493


386,298


451,103

700,000


137,802


206,883


276,688


346,493


416,298


486,103

1,876,900


373,182


559,953


747,448


934,943


1,122,438


1,309,933
27
Executive Pension ~~Plan~~Plan.
~~Fannie Mae~~  We adopted the Executive Pension Plan to supplement the benefits payable to key officers under the ~~Fannie Mae~~ Retirement Plan. The Compensation Committee ~~selects~~approves the participants ~~and determines~~in the ~~pension benefits for each participant.~~Executive Pension Plan, who include the named executives. The Board of Directors approves each participant’s pension goal, which is part of the formula that determines pension ~~benefits for participants who are at~~benefits. Payments under the ~~level of executive vice president and above. Payments~~Executive Pension Plan are reduced by any amounts payable under the ~~Fannie Mae~~Retirement Plan.
The annual pension benefit (when combined with the Retirement Plan ~~any amounts payable under the Civil Service retirement system attributable to Fannie Mae’s contributions~~benefit) for ~~service with it,~~Mr. Mudd equals 50% and ~~in certain circumstances, any amounts attributable to employer contributions payable under a prior employer’s tax-qualified plan.~~
~~Participants are granted pension benefits ranging from 30 percent to 60 percent~~for our other named executives equals 40% of the named executive’s highest average ~~total~~covered compensation ~~for~~earned during any 36 consecutive months within the ~~three consecutive years~~last 120 months of ~~the participant’s last ten years of employment when total compensation was the highest. Total~~employment. Covered compensation generally is a participant’s average annual base salary, including deferred compensation, plus the participant’s other taxable compensation ~~paid by Fannie Mae~~(excluding income or gain in connection with the exercise of stock options) earned for the relevant year, in an amount up to ~~50 percent~~150% of ~~annual~~ base salary for ~~that year. (Payments~~our Executive Vice Presidents and 200% of base salary for Mr. Mudd. As a result, Mr. Mudd’s maximum annual benefit under the Executive Pension Plan is 100% of his salary. The other named executives could receive a maximum annual benefit equal to 60% of salary. Effective for benefits earned ~~over multiyear periods are allocated equally over~~on and after March 1, 2007, the ~~years.)~~
only taxable compensation other than base salary considered for the purpose of calculating covered compensation is a participant’s annual incentive plan cash bonus.
Participants who retire before age 60 generally receive a reduced benefit. ~~Participants typically vest fully~~The benefit is reduced by 2% for each year between the year in ~~their~~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. A participant is not entitled to receive a pension benefit ~~after ten years of Fannie Mae service as a participant in~~under the Executive Pension Plan ~~with partial~~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 ~~usually beginning after~~at the rate of 10% per year during the next five years. 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. 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 spouse reaches 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 Supplemental Pension Plan. Benefits under the supplemental pension plans vest at the same time as benefits under the Retirement Plan. For purposes of determining benefits under the 2003 Supplemental Pension Plan, the amount of an officer’s annual cash bonus taken into account is limited to 50% of the officer’s base salary. Benefits under the supplemental pension plans typically commence at the same time as benefits under the Retirement Plan. Officers who are eligible for the Executive Pension Plan will receive the greater of their Executive Pension Plan or combined Supplemental Pension Plan and 2003 Supplemental Pension Plan benefits.

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~~Estimated annual~~
The table below shows information about years of credited service and the present value of accumulated benefits for each named executive under each of our pension plans. The Executive Pension Plan supplements the benefits payable ~~upon retirement, assuming that Fannie Mae’s corporate performance causes participants’ other compensation~~ to ~~equal or exceed 50 percent of annual base salary and full vesting at normal retirement age,~~named executives under the Retirement Plan; amounts are shown for ~~each of~~both these plans in the ~~covered executivesare as follows:~~table. Amounts are not shown for our supplemental pension plans, except for Mr. Raines (60 percent pension benefit), $1,037,727; Mr. Mudd (50 percent pension benefit), $537,098; Ms. Gorelick (50 percent pension benefit), $537,098; Mr. Howard (40 percent pension benefit), $375,000; and Mr. Levin (40 percent pension benefit), $345,000.
~~Employment Arrangements~~
~~Fannie Mae’s employment agreements~~Blakely, because no benefits would be paid under these plans if a named executive’s benefit under the Executive Pension Plan, together with ~~Mr. Raines, Mr. Mudd, and Ms. Gorelick end on June 30, 2003, June 30, 2003, and April 30, 2003, respectively. Under~~ the ~~agreements,~~named executive’s benefit under the Retirement Plan, exceeded his or her ~~current salary may not be reduced,~~combined benefits under the supplemental plans and the ~~agreements may~~Retirement Plan. At the time that most of our executives retire, the Executive Pension Plan will pay a greater benefit. As a result, we included only the values that would be ~~extended~~payable under the Retirement Plan and the Executive Pension Plan. Because Mr. Blakely has advised us of his intention to retire from Fannie Mae before 2011, when he first becomes entitled to receive benefits under the Executive Pension Plan, his benefits will be greater under our supplemental plans and, as a result, we have included values for ~~additional periods. The Board expects to enter into new agreements with~~ Mr. ~~Raines~~Blakely under those plans rather than under our Executive Pension Plan.
Pension Benefits for 2006

Number of Years Credited
Present Value of Accumulated
Service
Benefit
Name of Executive
Plan Name (#)⁽¹⁾ ($)⁽²⁾

Daniel Mudd⁽³⁾
Fannie Mae Retirement Plan 7 $ 101,102
Supplemental Pension Plan
2003 Supplemental Pension Plan
Executive Pension Plan 7 4,066,367
Robert Blakely⁽⁴⁾
Fannie Mae Retirement Plan 1 45,022
Supplemental Pension Plan 1 93,441
2003 Supplemental Pension Plan 1 70,624
Executive Pension Plan
Robert Levin Fannie Mae Retirement Plan 26 461,776
Supplemental Pension Plan
2003 Supplemental Pension Plan
Executive Pension Plan 17 2,758,908
Peter Niculescu Fannie Mae Retirement Plan 8 108,689
Supplemental Pension Plan
2003 Supplemental Pension Plan
Executive Pension Plan 4 631,129
Beth Wilkinson Fannie Mae Retirement Plan 1 11,818
Supplemental Pension Plan
2003 Supplemental Pension Plan
Executive Pension Plan 1 186,595
Michael Williams Fannie Mae Retirement Plan 16 245,231
Supplemental Pension Plan
2003 Supplemental Pension Plan
Executive Pension Plan 6 1,151,288
Julie St. John⁽⁴⁾
Fannie Mae Retirement Plan 16 379,149
Supplemental Pension Plan
2003 Supplemental Pension Plan
Executive Pension Plan 7 2,259,133
⁽¹⁾ Mr. Levin, Mr. Niculescu, Mr. Williams, and Ms. St. John 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⁾ 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 assuming the named executives will remain in service until age 65, the normal retirement age under the Retirement Plan. 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 14, Employee Retirement Benefits,” of our Annual Report on Form10-K for the year ended December 31, 2006.

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⁽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⁾ Mr. Blakely is eligible for retirement under our supplemental pension plans and the Retirement Plan. Ms. St. John was eligible for early retirement under the Executive Pension Plan and the Retirement Plan.
Nonqualified Deferred Compensation
The table below provides information on the nonqualified deferred compensation of the named executives in 2006, including compensation deferred under our Elective Deferred Compensation Plan II, our Career Deferred Compensation Plan and our Performance Share Program.
Elective Deferred Compensation Plans.  Our Elective Deferred Compensation Plan II allows 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.
The prior deferred compensation plan, the Elective Deferred Compensation Plan I, continues to operate for compensation deferred under that plan on or prior to ~~June 30, 2003.~~
~~Among other things, the agreements provide that if the officer is terminated other than for cause, is not nominated for election~~December 31, 2004. Similar to the ~~Board~~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.
Career Deferred Compensation Plan.  Our Career Deferred Compensation Plan allowed participants to defer compensation until their retirement. The plan is frozen to new participants and, while accounts continue to be credited with rates of ~~Directors,~~return, no further contributions can be made to the plan. The Career Deferred Compensation Plan is ~~removed from~~funded by a rabbi trust, a special type of trust the assets of which are subject to the claims of our creditors.
Deferred Payments under PSP.  We have adopted guidelines under the 1993 Plan that permit participants in the PSP to defer payment of their awards until a later date or a specified event such as retirement. Under these guidelines, participants can choose to have their deferred PSP payments converted into a hypothetical investment portfolio.

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Nonqualified Deferred Compensation for 2006

Executive
Registrant
Aggregate
Aggregate
Aggregate
Contributions in
Contributions in
Earnings in Last
Withdrawals/
Balance at Last
Last Fiscal Year
Last Fiscal Year
Fiscal Year
Distributions
Fiscal Year-End
Name of Executive
($) ($) ($) ($) ($)

Daniel Mudd
— — — — —
Robert Blakely

Elective Deferred Compensation Plan II $ 275,000 ⁽¹⁾ — $ 24,872 — $ 299,872
Robert Levin

Deferred Performance Share Program Payments — — 205,511 — 3,399,842
Peter Niculescu
— — — — —
Beth Wilkinson
— — — — —
Michael Williams

Career Deferred Compensation Plan — — 23,499 — 506,905
2001 Special Stock award⁽²⁾
— — 14,878 — 75,979
Julie St. John

Deferred Performance Share Program Payments — — 53,763 — 440,254
Career Deferred Compensation Plan — — 187,620 — 1,374,791
Elective Deferred Compensation Plan — — 360,416 — 2,640,958
⁽¹⁾ Consists of salary reported in the “Summary Compensation Table.” This amount does not include Mr. Blakely’s bonus of $1,290,575 reported in the “Summary Compensation Table,” which was contributed to the Elective Deferred Compensation Plan II in 2007.
⁽²⁾ The Board 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 stock price appreciation. Mr. Williams’ share balance has grown through the reinvestment of dividends to 1,279 shares as of December 31, 2006.

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Potential Payments Upon Termination orChange-in-Control
The information below describes and quantifies certain compensation and benefits that would become payable under our existing employment agreements, plans, and arrangements if our named executives’ employment had terminated on December 29, 2006, taking into account each named executive’s compensation and service levels as of that date and based on the closing price of our common stock on December 29, 2006. We are not obligated to provide any additional compensation in connection with achange-in-control. The information below does not generally reflect compensation and benefits available to all salaried employees upon termination of employment with us under similar circumstances.
Employment Agreement with Daniel Mudd.  Mr. Mudd’s employment agreement provides for certain benefits upon the termination of his employment with us depending on the reason for his termination. These benefits are described in the following table.
Type of Termination Payments
Without “Cause,” By Mr. Mudd For “Good Reason,” Serious Illness or Disability, or “Failure to Extend” the Employment Agreement

“Cause” means Mr. Mudd has: (a) materially harmed the company by, in connection with his service under his employment agreement, engaging in dishonest or fraudulent actions or willful misconduct, or performing his duties in a grossly negligent manner, or (b) been convicted of, or pleaded no lo contendere with respect to, a felony.

“Good Reason” means (a) a material reduction by the company of Mr. Mudd’s authority or a material change in Mr. Mudd’s functions, duties or responsibilities that in any material way would cause Mr. Mudd’s position to become less important, (b) a reduction in Mr. Mudd’s base salary, (c) a requirement that Mr. Mudd report to anyone other than the Chairman of the Board of Directors, (d) a requirement by Fannie Mae that Mr. Mudd relocate his office outside of the Washington, DC area, or (e) a breach by the company of any material obligation under the employment agreement.

“Failure to Extend” means notification by the company that it does not desire to extend the term of the employment agreement (which expires December 31, 2009) or that it desires to do so only on terms in the aggregate that are materially less favorable to Mr. Mudd than those currently applicable.
— Accrued, but unpaid base salary.

— Base salary for two years (subject to offset for other employment or employer-provided disability payments in the event of termination due to serious illness or disability).

— Prorated annual bonus for the year of termination and all amounts payable (but unpaid) under the annual bonus plan with respect to any year ended on or prior to the termination date.

— Prorated PSP payment for any cycle in which at least 18 months have elapsed as of the date of termination and payment of all amounts payable (but unpaid) for completed cycles.

— Vesting of all shares of restricted stock, to the extent not already vested.

— Vesting of all options; options granted after the date of the employment agreement remain exercisable through the earlier of the remainder of the original exercise period and the third anniversary of the date of the termination.

— Upon a termination by Fannie Mae without Cause or by Mr. Mudd for Good Reason, continued medical and dental coverage for Mr. Mudd 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.

Death or by Reason of Mr. Mudd’s Acceptance of an Appointment to a Senior Position in the U.S. Federal Government
— Same payments as above except (a) no salary severance, (b) no continued medical and dental coverage, and (c) in the case of termination due to acceptance of a governmental position, no accelerated vesting of options.

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Type of Termination Payments

“Retirement” or “Early Retirement”

“Retirement” means termination at or after age 65, under conditions entitling an eligible employee to an immediate annuity under the Fannie Mae Retirement Plan.

“Early Retirement” means termination at or after age 60, but before age 65, with five or more years of service, or at an earlier age only if permitted by the Compensation Committee in its sole discretion.
— Accrued, but unpaid base salary.

— Prorated PSP payment for any cycle in which at least 18 months have elapsed as of the date of termination and payment of all amounts payable (but unpaid) for completed cycles.

— In the case of Retirement, but not Early Retirement, vesting of all shares of restricted stock, to the extent not already vested. In the event of Early Retirement, Fannie Mae may in its discretion accelerate the vesting of shares of restricted stock.

— Vesting of all options and options granted after the date of the employment agreement will remain exercisable through the earlier of the remainder of the original exercise period and the third anniversary of the date of the termination.

For Cause or Voluntary Termination (other than for Good Reason or to Accept a Senior Position in the U.S. Federal Government)
— Accrued, but unpaid base salary.

— If termination is for Cause, Mr. Mudd would not be entitled to any amounts payable (but unpaid) of any bonus or under any PSP award with respect to a performance cycle if the reason for such termination for Cause is substantially related to the earning of such bonus or to the performance over the performance cycle upon which the payment was based.
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 ~~current position,~~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 ~~agreement is not extended after the end~~right to seek and obtain injunctive relief from a court of ~~its term, if there is a material change in responsibilities,~~competent jurisdiction to restrain Mr. Mudd from any actual or ~~if for any reason his or her employment is terminated within six months after a change in control~~threatened breach of ~~Fannie Mae, the officer will be entitled to receive his or her then current annual salary until the later of the close of the remaining term 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 one year after its termination or nonextension (reduced, starting six months after termination, by amounts earned through other employment). Each employment agreement contains a similar provision if the officer’s employment terminates due to disability, except that the amount of annual salary will be reduced by any disability benefits received, to the extent that the benefits are attributable to payments made by Fannie Mae, and by any amounts earned through other employment, until the employment agreement expires.
~~If Mr. Raines dies during the term~~discussion of his employment agreement and to reimburse him for a complete physical examination annually.
The following table quantifies the compensation that would have become payable to Mr. Mudd if his ~~designated beneficiary will receive a cash sum equal to two times Mr. Raines’ annual salary at~~employment had terminated on December 29, 2006, given his compensation as of that date and based on the ~~time~~closing price of ~~death. His surviving spouse will begin to receive~~our common stock on that date. In the ~~Executive Pension Plan surviving spouse’s benefit immediately, regardless~~case of ~~her age, and~~retirement, the ~~benefit will be reduced only~~table shows benefits that would have become payable if Mr. ~~Raines dies before~~Mudd had reached age ~~55. If~~60 with 5 years of service or age 65 with no service requirement; Mr. Mudd ~~or Ms. Gorelick dies during the term of his or her employment agreement, the designated beneficiary or estate~~
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~~will receive a cash sum equal~~is currently 48.
Potential Payments to ~~his or her annual salary in effect at death.~~
As announced by Fannie Mae on January 10, 2003, Ms. Gorelick will leave Fannie Mae later this year to devote substantial time to the bipartisan national commission investigating the attacks of September 11, 2001, and to pursue other interests. Ms. Gorelick will remain an employee of Fannie Mae through June 30, 2003. Until that date, Ms. Gorelick will continue to receive her current salary and benefits, including the vesting of stock-based compensation and pension benefits pursuant to her agreement. In addition, the Compensation Committee and the Board have approved that all options scheduled to vest in November 2003 and a pro rata portion of Ms. Gorelick’s EPS challenge options award will vestMr. Mudd as of ~~June 30, 2003. Ms. Gorelick~~December 29, 2006

Without Cause,

for Good Reason
Acceptance of

or upon Non-
Senior Position in

Extension of the
Serious Illness
U.S. Federal

Payment Type
Agreement or Disability Government Death Retirement

Cash Severance $ 1,900,000 $ 1,900,000 N/A N/A N/A
Cash Bonus⁽¹⁾
3,500,000 3,500,000 $ 3,500,000 $ 3,500,000 $ 3,500,000
Accelerated Stock Awards⁽²⁾
13,752,230 13,752,230 13,752,230 13,752,230 13,752,230
Performance Share Program Awards⁽³⁾
1,287,499 1,287,499 1,287,499 1,287,499 1,287,499
Medical Benefits⁽⁴⁾
37,502 N/A N/A N/A N/A

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⁽¹⁾ The amounts of cash bonus shown assume that the Board would have determined to grant Mr. Mudd a cash bonus award under our annual incentive plan in the amount he actually received for 2006. In the case of retirement, Mr. Mudd’s employment agreement does not explicitly provide for a bonus, but he would have been entitled to a bonus under the terms of our annual incentive plan as in effect on December 29, 2006. The plan also gives our Compensation Committee discretion to award prorated bonuses to retirees who depart at other times of the year.
⁽²⁾ No value is shown for Mr. Mudd’s options subject to accelerated vesting because the exercise price of the options exceeded the closing price of our common stock on December 29, 2006.
⁽³⁾ The reported amounts are for payments under our PSP that normally would have been paid subsequent to December 29, 2006 and to which Mr. Mudd would not have been entitled if he left in the absence of his agreement. For more information regarding our PSP, see “Compensation Discussion and Analysis—What decisions have we made with regard to our Performance Share Program?”
⁽⁴⁾ These benefits would not be available to Mr. Mudd if his agreement was not extended. The amount shown assumes that Mr. Mudd will receive medical and dental coverage for two years after his termination of employment and is calculated using the assumptions used for financial reporting purposes under generally accepted accounting principles.
Agreement with Robert Levin.  We have ~~until June 30, 2004 to exercise all vested options. These additional benefits must be approved by the Office of Federal Housing Enterprise Oversight.~~
~~Fannie Mae has agreements~~a letter agreement with Mr. ~~Howard and Mr.~~ Levin, ~~executive vice presidents of Fannie Mae. Each~~dated June 19, 1990. The agreement provides that if ~~the officer~~he is terminated for reasons other than for ~~cause,~~“cause,” he will continue to receive his base salary for a period of 12 months from the date of termination and will continue to be covered by ~~Fannie Mae’s~~our life, medical, and long-term disability insurance plans for a12-month period, or until ~~re- employment~~re-employment that provides certain coverage for benefits, whichever occurs first. For the purpose of this agreement, “cause” means a termination based upon reasonable evidence that Mr. Levin has breached his duties as an officer by engaging in dishonest or fraudulent actions or willful misconduct. Any disability benefits that ~~the officer~~he receives during the12-month period will reduce the amount otherwise payable ~~byFannie Mae,~~by us, but only to the extent the benefits are attributable to payments made by ~~Fannie Mae.~~us. If Mr. Levin had been terminated for reasons other than for “cause” as of December 29, 2006, he would have been entitled to receive an aggregate cash severance payment of $750,000 and medical, long-term disability, and life insurance coverage with premiums and a relatedgross-up payment we estimate would have cost us an aggregate of approximately $71,500.
Severance Program.  On March 10, 2005, our Board of Directors approved a severance program that provided guidelines regarding the severance benefits that management-level employees, including all of the named executives except for Mr. Mudd, were entitled to receive if their employment with us was terminated as a result of corporate restructuring, reorganization, consolidation, staff reduction, or other similar circumstances, where there were no performance-related issues, and where termination was not for cause. Ms. St. John participated in the severance program. The severance program expired on December 31, 2006 and was replaced with a program that does not apply to our named executives or other executive officers. As effective for 2006, the severance program provided for the following benefits, subject to OFHEO approval, for named executives (other than Mr. Mudd):
• a severance payment of one year’s salary plus four weeks’ salary for each year of service with us up to a maximum of one and a half years’ salary;
• for participants terminated after the first quarter of the fiscal year, a pro rata payout of the participant’s annual cash incentive award target for the year in which termination occurred, adjusted for corporate performance;
• consistent with the terms of our applicable stock compensation plan, accelerated vesting of options that were scheduled to vest within 12 months of termination and the extension of option exercise periods to the earlier of the option expiration date or 12 months following the termination of employment;
• accelerated vesting of restricted stock and restricted stock unit awards granted under the 2003 Plan that would have otherwise vested within 12 months of termination;
• for the cash portion of long-term incentive awards for the 2005 performance year, which are payable in four equal annual installments beginning in 2007, accelerated payment of the amount that would have otherwise become payable within 12 months of termination; and
• payment of unpaid performance shares for completed performance cycles.

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~~Certain Transactions~~
The program was available only to employees who had served at least 13 weeks. Participants were required to execute a separation agreement to receive these benefits containing, where permitted, a one-year non-compete clause and ~~Relationships~~also containing a waiver of claims against us.
Participants found violating the competition restriction would be required to return any severance payments that they received. The program also provided for outplacement services and continued access to our medical and dental plans for up to five years, with the first 18 months’ premiums to remain at a level no higher than they would be if the participant were still an active employee.
The following table quantifies the compensation that would have become payable to the named executives under the severance program if their employment had terminated on December 29, 2006, given their compensation as of that date and the closing price of our common stock on December 29, 2006 and assuming we had received OFHEO’s approval. In the case of Ms. St. John, the table shows the benefits to which she became entitled in connection with her retirement in December 2006. The amounts of cash severance shown assume, where applicable, that the Board would have determined we achieved performance of our corporate annual incentive plan goals at 110% of our target level, which was the level actually determined for 2006.
Potential Payments under 2005 to 2006 Severance Program as of December 29, 2006

Named Executive
Cash Payment⁽¹⁾ Equity Award⁽²⁾⁽³⁾ Medical and Dental Outplacement⁽⁴⁾

Robert Blakely⁽⁵⁾
$ 2,058,500 — $ 15,158 $ 18,000
Robert Levin 3,465,937 $ 3,475,748 20,590 18,000
Peter Niculescu 2,011,452 1,890,994 20,590 18,000
Beth Wilkinson 1,662,856 494,956 20,968 18,000
Michael Williams 2,747,567 2,590,929 20,590 18,000
Julie St. John⁽⁶⁾
1,883,193 1,920,246 1,743 18,000
⁽¹⁾ Cash payments include severance payments, pro rata payments of annual cash incentive awards, and accelerated payments of the cash portion of the long-term incentive awards for 2005 that would have otherwise been payable within 12 months of an executive’s termination.
⁽²⁾ Reflects accelerated vesting of restricted stock and restricted stock units and performance shares under our PSP. No value is shown for options subject to accelerated vesting because the exercise price of the options exceeded the closing price of our common stock on December 29, 2006.
⁽³⁾ The reported amounts include payments under our PSP that normally would have been paid subsequent to December 29, 2006 and to which the named executives would not have been entitled if they had left in the absence of the severance program. For more information regarding our PSP, see “Compensation Discussion and Analysis—What decisions have we made with regard to our Performance Share Program?”
⁽⁴⁾ The amounts shown assume the executive will find new employment within 6 months.
⁽⁵⁾ If Mr. Blakely had left Fannie Mae on December 29, 2006 under the severance program, he would also have been eligible as a retiree to receive an additional cash payment of $1,656,270 under a long-term incentive award and accelerated vesting of restricted stock units worth $4,252,977. These amounts are not shown in this table, but are set forth in the “Potential Payments under our Stock Compensation Plans and 2005 Performance Year Cash Awards” table below.
⁽⁶⁾ Based on her age and years of service, upon her departure from Fannie Mae Ms. St. John received an extension of the exercise period of her options to the option expiration date under our stock compensation plans. She also was eligible for our retiree medical benefits. Because these benefits are available to all full-time, salaried employees, our costs for these benefits have not been included in the table above. The amount shown for Ms. St. John reflects our estimated cost of subsidizing her dental plan premiums for 18 months.

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~~During 2002,~~
Stock Compensation Plans, 2005 Performance Year Cash Awards, and Annual Incentive Plan
• Death, Disability, and Retirement.  Under the 1993 Plan and the 2003 Plan, stock options, restricted stock, and restricted stock units held by our employees, including our named executives, fully vest upon the employee’s death, disability or retirement. On these terminations, or if an option holder leaves 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, our named executives, other than Mr. Mudd, received a portion of their long-term incentive awards for the 2005 performance year in the form of cash awards payable in four equal annual installments beginning in 2007. Under the terms of the awards, 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, disability, or retirement.
• Performance Share Program.  As described above, performance shares are contingent grants of our common stock that are paid out based on performance over three-year performance periods. Actual payouts are generally made in two installments. Participants whose employment terminates at least 18 months after the beginning of the cycle but prior to the end of a performance cycle, due to death, disability, or, after age 55, at least five years of service, receive a pro rata payment of the performance shares at the end of the cycle, except in the case of death, in which case the payment is made as soon as practicable after the participant’s death.
For each named executive who remained with Fannie Mae, ~~was a party~~other than Mr. Mudd, the following table provides the value of the awards that would have vested or become payable if, as of December 29, 2006, the named executive had died, become disabled, or retired either (1) at or after age 60 if the named executive had at least five years of service or (2) at or after age 65 regardless of the executive’s length of service. Information about what Mr. Mudd would have been entitled to ~~certain business transactions with institutions related to directors and nominees. These transactions were done~~receive if he had died, become disabled, or retired as of December 29, 2006 appears in the ~~ordinary course~~“Potential Payments to Mr. Mudd as of ~~business, with terms~~December 29, 2006” table above.
Potential Payments under our Stock Compensation Plans and ~~conditions substantially the same as those prevailing for comparable transactions with other persons. They represent an insignificant portion~~2005 Performance Year Cash Awards⁽¹⁾

Restricted Stock and
Performance
Name of Executive
Restricted Stock Units Cash Award⁽²⁾ Shares⁽³⁾

Robert Blakely $ 4,252,977 $ 1,656,270 N/A
Robert Levin 6,878,312 2,103,750 1,198,557
Peter Niculescu 3,324,652 885,720 717,863
Beth Wilkinson 1,484,750 N/A N/A
Michael Williams 5,164,139 1,656,270 923,673
⁽¹⁾ The values reported in this table, except for the cash, are based on the closing price of our common stock on December 29, 2006. No amounts are shown in the table for stock options because the exercise prices for options held by Mr. Levin, Mr. Niculescu and Mr. Williams that would have vested exceed the closing price of our common stock on December 29, 2006. Mr. Blakely and Ms. Wilkinson 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 awards for the 2005 performance year.
⁽³⁾ The reported amounts in the “Performance Shares” column consist of payments under our PSP that normally would have been paid subsequent to December 29, 2006 and to which the named executives would not have been entitled if they left in the absence of the severance program. For more information regarding our PSP, see “Compensation Discussion and Analysis—What decisions have we made with regard to our Performance Share Program?”
• 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 Mr. Mudd and $2,000,000 for our other named executives. The death benefit is reduced by 50% at the

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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. Historically we also have paid our named executives a tax“gross-up” to cover any related taxes, but these payments will be eliminated as of January 1, 2008.
• 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. We agreed that Mr. Blakely may participate in our retiree medical program as long as he remained employed until age 65.
• Pension and Deferred Compensation Benefits.  Our named executives are also entitled to the benefits described above in “Pension Benefits” and “Nonqualified Deferred Compensation.”

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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of Fannie Mae’s ~~business.~~
Board of Directors is composed of five directors. In the business judgment of the Board of Directors, each Committee member meets the independence, qualification, and expertise requirements of the NYSE listing standards and Fannie Mae’s Corporate Governance Guidelines. The ~~following directors~~Board has determined that Mr. Beresford, Ms. Horn, Mr. Smith, and ~~executive officer had reportable relationships~~Mr. Wulff have the requisite experience to qualify as “audit committee financial experts” under the rules and regulations of the SEC and has designated them as such.
The Audit Committee operates under a written charter that is reviewed annually and was last revised by the Board of Directors in ~~2002.~~
~~Mr. Duberstein~~January 2007. A copy of the charter is ~~Chairman~~available on our Web site at www.fanniemae.com. In addition to preparing this Audit Committee report, the purpose of the Audit Committee under its charter is to oversee:
• the accounting, reporting, and financial practices of the Corporation and its subsidiaries, including the integrity of the Corporation’s financial statements and internal control over financial reporting;
• the Corporation’s compliance with legal and regulatory requirements (in coordination with the Compliance Committee of the Board);
• the independent auditor’s qualifications and independence; and
• the performance of the Corporation’s internal audit function and the Corporation’s independent auditor.
In accordance with this purpose, the independent auditor reports directly to the Audit Committee and the Audit Committee has the sole authority to appoint and retain the independent auditor. The Audit Committee pre-approves the fees for and the terms of all audit and non-audit services to be provided by Fannie Mae’s independent auditor. The Committee meets separately on a periodic basis with each of management, the head of the internal audit department, and the independent auditor. The Committee has the authority to retain independent counsel, accountants, experts, and other advisors to assist the members in carrying out their duties.
For the year ended December 31, 2006, the Audit Committee met 19 times, and as of October 22, 2007, has met 14 times during the year ended December 31, 2007. During 2006 and 2007, the Committee met with members of senior management (including the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, the Controller, the Chief Audit Executive, the Chief Risk Officer, the Chief Compliance Officer, the Senior Vice President for Accounting Policy, the Senior Vice President for Sarbanes-Oxley, and the General Counsel) and internal tax, finance, legal, and internal audit personnel, as well as representatives from Fannie Mae’s independent auditor, to discuss and review the audit scope and plans, the results of ~~The Duberstein Group, an~~internal and external audit examinations, evaluations by the Corporation and by the independent ~~strategic planning~~auditor of Fannie Mae’s internal controls over financial reporting, the quality of Fannie Mae’s financial reporting, Fannie Mae’s compliance with legal and ~~consulting company,~~regulatory requirements, the accounting policies and ~~is a nominee for election~~procedures, the earnings press releases, financial information and earnings guidance, the engagement, independence and quality-control procedures of the independent auditor, and other matters. Specifically, during the years ended December 31, 2006 and 2007, the Committee, among other things:
• reviewed, and discussed with management, the audited financial statements included in Fannie Mae’s Annual Report onForm 10-K for the year ended December 31, 2006;
• discussed with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61, as amended;
• received the written disclosures and the letter from the independent auditor, Deloitte & Touche LLP, required by Independence Standards Board Standard No. 1 (“Independence Discussions with Audit Committees”) and discussed with the independent auditor its independence from Fannie Mae;
• conducted due diligence regarding the independent auditor’s independence from Fannie Mae and its management;

59
• reviewed and discussed the scope and resources for the internal audit function; and
• reviewed and oversaw the process by which Fannie Mae’s Chief Executive Officer and Chief Financial Officer certified Fannie Mae’s periodic disclosures.
In reliance on the reviews, reports, and discussions referred to above, the Audit Committee recommended to the Board of ~~Directors. The firm has provided services to Fannie Mae since 1991. During 2002,~~Directors, and the ~~firm provided services on an annual fixed-fee basis~~Board of ~~$375,000~~Directors approved, the inclusion of the audited financial statements, for the years ended December 31, 2004, December 31, 2005, and ~~will continue to provide similar services during 2003.~~
~~Mr. Swygert’s son is employed by Fannie Mae as a non-officer employee~~December 31, 2006, in Fannie Mae’s ~~eBusiness Marketing area. Mr. Swygert is an independent director under Fannie Mae’s Corporate Governance Guidelines and would continue to be independent under~~Annual Report onForm 10-K for the ~~director independence standards recently proposed by~~year ended December 31, 2006.
In addition, the ~~New York Stock Exchange (“NYSE”).~~
~~Mr. Levin’s sister is employed by Fannie Mae as a non-officer employee in Fannie Mae’s Enterprise Systems Operations division.~~
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~~PROPOSAL 2:    RATIFICATION OF AUDITORS~~
~~The~~ Audit Committee has ~~selected KPMG LLP as~~approved the ~~outside auditors~~appointment of Fannie ~~Mae~~Mae’s independent auditor, Deloitte & Touche LLP, for ~~2003~~2007, and the Board of Directors has ~~approved that selection. KPMG LLP has served as~~submitted the ~~outside auditors~~appointment to shareholders for ratification at the 2007 annual meeting.
Interested parties may contact the Audit Committee by electronic mail, sent to “auditcommittee@fanniemae.com,” or by U.S. mail, sent to Audit Committee,c/o Office of the Secretary, Fannie Mae, ~~since 1969.~~Mail Stop: 1H-2S/05, 3900 Wisconsin Avenue NW, Washington DC20016-2802.
The Audit Committee
Dennis R. Beresford, Chair
Stephen B. Ashley
Karen N. Horn
Greg C. Smith
John K. Wulff

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PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
After evaluating the performance of Deloitte & Touche LLP in 2006, the Audit Committee has appointed Deloitte & Touche LLP as our independent registered public accounting firm for 2007. In accordance with established policy, the Board of Directors has ratified that appointment. Representatives of ~~KPMG~~Deloitte & Touche LLP will be present at the annual meeting and will be given the opportunity to make a statement, if they desire ~~todo~~to do so, and to respond to appropriate questions. Unless shareholders specify otherwise in ~~the proxy,~~their voting instructions, proxies solicited by the Board of Directors will be voted ~~by the proxy holders at the annual meeting to ratify~~FOR ratification of the selection of ~~KPMG~~Deloitte & Touche LLP as Fannie Mae’s ~~outside auditors~~independent registered public accounting firm for ~~2003.~~2007. A majority of the votes cast ~~at the annual meeting~~on this proposal is required for ratification.
Fees Paid
The following is a description of the fees paid by ~~Fannie Mae~~us to ~~KPMG~~Deloitte & Touche LLP during ~~2002~~2006 and ~~2001:~~
Description of Fees

Fees for
the Year Ended December 31, 2002

Fees for
the Year Ended December 31, 2001
Audit Fees

$
1,978,955

$
1,402,200
Audit Related Fees (1)


3,651,493


2,674,596
Tax Fees (2)


3,638,820


3,862,275
All Other Fees (3)(4)


221,165


237,165


Total Fees

$
9,490,433

$
8,176,236


~~Notes to Auditor Fees Table~~
2005:

Fees For The Year Ended
Fees For The Year Ended
Description of Fees
December 31, 2006 December 31, 2005

Audit Fees $ 42,000,000 $ 59,966,000
Audit-Related Fees⁽¹⁾
192,000 —
Tax Fees — —
All Other Fees — —
Total Fees $ 42,192,000 $ 59,966,000
~~(1)~~
⁽¹⁾ For ~~2002, represents~~2006, consists of fees billed for ~~REMIC pricing and closing letters ($3,293,400), REMIC payment validation services ($300,000), due diligence~~attest-related services on ~~multifamily loans, and assistance~~securitizations. For 2005, excludes $100,000 paid to Deloitte & Touche LLP for an engagement with ~~regulatory matters. For 2001, represents fees for REMIC pricing and closing letters ($2,449,500) and REMIC payment validation services ($225,096).~~
~~(2)~~ For 2002, represents fees for REMIC tax return preparation ($3,423,820) and processing certain amortization schedules. For 2001, represents fees for REMIC tax return preparation ($3,470,275), securities structuring advice, tax memoranda, and corporate tax return review.
~~(3)~~ For 2002, represents fees for a contract and procurement processing review and financial planning services for certain Fannie Mae officers. For 2001, represents fees for financial planning services for certain Fannie Mae officers, a securities counterparty review, a payroll process review and miscellaneous client assistance projects.
~~(4)~~ ~~Fannie Mae did not engage KPMG LLP~~one of our counterparties to provide ~~advice regarding, and was not billed by KPMG LLP for any fees in respect of, financial information systems design and implementation during 2002 or 2001.~~a comfort letter on a REMIC transaction.
Pre-Approval Policy
The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services to be provided by the independent registered public accounting firm for the upcoming year. The independent registered public accounting firm and management are required to present reports on the nature of the services provided by the independent registered public accounting firm for the past year and the fees for such services, categorized into audit services, audit-related services, tax services, and other services. In addition, management and the independent registered public accounting firm are required to submit a list of proposed audit and permissible non-audit services and the estimated fees for such services for the upcoming year. The Audit Committee approves the audit and permissible non-audit services for the upcoming year. Pre-approval for services is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and authorized fees. In the event that the fees for pre-approved services during the year exceed the authorized fees by 20%, then the increased fees must be pre-approved by the Audit Committee.
The Audit Committee has delegated the authority to pre-approve any audit and permissible non-audit services and fee increases that arise during the year to its current Chair, Mr. Beresford, who is required to report any such pre-approvals at the next scheduled meeting of the Audit Committee.
In 2006, no fees were paid to the independent registered public accounting firm pursuant to the de minimis exception established by the SEC, and all services were pre-approved.
The Board of Directors recommends that shareholders

vote~~for~~FOR the ratification of the selection of ~~KPMG LLP.~~Deloitte & Touche LLP as Fannie Mae’s independent
registered public accounting firm for 2007.

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30
~~PROPOSAL 3:    APPROVAL OF FANNIE MAE STOCK                                COMPENSATION PLAN OF 2003~~
~~Background~~
PROPOSAL 3: APPROVAL OF AMENDMENT TO FANNIE MAE STOCK COMPENSATION PLAN OF 2003
At the 2007 annual meeting, our shareholders will be asked to consider and vote upon a proposal to amend the 2003 Plan, which we refer to as the “Plan,” to change the form and amount of equity compensation for our non-management directors. The ~~Fannie Mae Stock Compensation Plan~~effect of ~~2003 (the “Plan”) was approved by~~ the ~~Board on January 21, 2003, subject~~proposed amendment to the ~~shareholders’ approval~~Plan, together with the changes to the cash component of director compensation described above under “Proposal 1: Election of Directors—Director Compensation,” is to target total director compensation at the ~~annual meeting.~~ median of our comparator group.
Proposed Amendment to the Plan
If approved, the proposed amendment to the Plan, which we refer to as the “Plan Amendment,” would:
• discontinue automatic stock option grants to non-management directors at each annual meeting;
• eliminate the current Plan provision requiring automatic awards to non-management directors of restricted stock in 2006 (with the 2006 award to have a fair market value of $75,000) and in 2010 (with the 2010 award to have a fair market value of $90,000), as described in more detail below under “Non-Management Director Restricted Stock Awards”;
• provide for automatic awards of restricted stock or restricted stock units (collectively referred to as “restricted stock”) to non-management directors, after each annual meeting, with a fair market value to be determined annually by the Board (which, for the annual meeting in 2008, will be $135,000), and that will vest in full no later than one year after the date of grant, as described in more detail below under “Non-Management Director Restricted Stock Awards”; and
• permit non-management directors to elect to defer awards of restricted stock and convert their annual cash retainer into deferred shares, as described below under “Deferred Compensation.”
The Plan ~~will become~~Amendment does not increase the total number of shares of stock that may be issued under the Plan.
In 2003, our Board adopted the Plan, which became effective ~~upon~~when our shareholders approved the ~~shareholders’ approval.~~ Plan in May 2003. Our Board adopted the Plan Amendment in September 2007 to implement our new non-management director compensation structure. The new compensation structure is based on recommendations from the Board’s outside compensation consultant, Semler Brossy Consulting Group. Prior to making its recommendations to our Board regarding compensation of our non-management directors, Semler Brossy prepared and presented to our Board a comprehensive study of the compensation of the non-management directors relative to contemporary practices for directors, including practices among the companies that comprise our comparator group. Our comparator group is identified and discussed above under “Executive Compensation—Compensation Discussion and Analysis—“How does comparability factor into our executive compensation decisions?”
Semler Brossy’s recommendations included recommendations to:
• simplify our current program,
• curtail the use of options for directors,
• eliminate meeting fees for our non-management directors, and
• rely, in the future, on cash retainers and an annual restricted stock grant.
The Board believes that the Plan ~~will enable Fannie Mae~~Amendment is in the interest of the company and necessary to (1) provide stock compensation to directors that is comparable to that provided by similar companies, and (2) to continue ~~to: (1)~~to attract, motivate, and retain experienced and ~~reward employees~~knowledgeable independent directors.
If our shareholders approve the Plan Amendment, no annual stock option awards will be made with respect to the annual meeting that would have been held in 2005 or 2006. Additionally, our non-management directors will no longer automatically receive annual stock option grants at the 2007 annual meeting and ~~experienced, independent directors; (2) promote close identity~~future annual

62
meetings. The Plan Amendment will not affect stock options that are outstanding under the Plan, which will continue in accordance with their terms.
In addition, if our shareholders approve the Plan Amendment, our non-management directors will not receive the restricted stock award that was scheduled to be granted immediately following our 2006 annual meeting. Instead, immediately after the annual meeting of ~~interests between~~shareholders in 2008, our non-management directors ~~officers, employees,~~will receive the restricted stock unit awards described below.
If the Plan Amendment is not approved, the Plan will continue without amendment and ~~shareholders;~~our non-management directors will continue to be eligible for automatic annual grants of stock options and ~~(3)~~certain restricted stock grants under the current terms of the Plan.
Our non-management directors have not received option awards scheduled to be granted immediately following our 2005 and 2006 annual meetings nor have they received the restricted stock award that was scheduled to be granted immediately following our 2006 annual meeting.
Our non-management directors have a financial interest in this proposal because it would increase the amount of the automatic restricted stock award for non-management directors under the Plan, and would provide ~~incentives for high levels~~the Board with greater flexibility in determining the amount of ~~individual performance.~~
this annual award in future years.
Unless shareholders specify otherwise in the proxy, proxies solicited by the Board of Directors will be voted by the proxy holders at the annual meeting to approve the ~~plan.~~Plan Amendment. A majority of the votes cast ~~at the annual meeting~~on this proposal is required to approve this proposal.
The ~~following is a summary~~Board of Directors recommends that shareholders vote
FORthe approval of the ~~material terms~~Amendment to the Fannie Mae Stock Compensation Plan of 2003.
Summary Description of the ~~Plan. This summary is qualified in its entirety by the~~Plan
The complete ~~terms~~text of the Plan, ~~a copy~~marked to show the effect of ~~which~~the proposed Plan Amendment, is attached to this proxy statement as Appendix ~~C. Some of the highlights~~A. The following summary of the Plan, ~~(each of which~~as proposed to be amended, is ~~described~~qualified in ~~more detail below and in the attached Plan document) include:~~
• ~~Limit on Shares Available.~~    The plan authorizes the grant of 40,000,000 shares. Shares remaining for issuance under the Fannie Mae Stock Compensation Plan of 1993 will not be used for future awards after shareholder approval of the 2003 Plan.
• ~~No Discount Stock Options.~~    ~~The Plan prohibits the grant of a stock option with an exercise price less than the fair market value of shares of common stock on the award date.~~
• ~~No Repricing of Stock Options.~~    ~~The Plan prohibits the modification of stock options so as to reduce the exercise price of the option.~~
• ~~Material Amendments to the Plan Require Shareholder Approval.~~    ~~The Plan provides that any material amendment to the Plan is subject to shareholder approval.~~
• ~~Independent Committee Administration.~~     ~~The Plan will be administered by the Compensation Committee of the Board of Directors, which is composed entirely of independent directors.~~
its entirety by reference to Appendix A.
Grants
The Plan provides for grants to Fannie Mae employees of stock options, stock appreciation rights (“SARs”), restricted shares or units of common stock (“restricted stock”), performance share awards, and stock bonuses. Options may be either incentive stock options (“ISOs”), which are intended to satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or ~~non-qualified~~nonqualified stock ~~options (“NQOs”).~~options. SARs entitle the grantee to receive the difference in value between the underlying common stock on the date of exercise and the date of grant. SARs may be awarded by themselves or granted in tandem with another award. Restricted stock may be subject to forfeiture conditions. As of October 22, 2007, Fannie Mae had 6,073 employees.
The Plan also provides for grants of ~~NQOs~~nonqualified stock options, and awards of restricted stock or units, and deferred shares to ~~nonmanagement~~non-management directors. As of November 2, 2007, Fannie Mae had 12 non-management members on its Board of Directors.
As of October 22, 2007, the fair market value of Fannie Mae common stock underlying stock options and SARs was $58.15 based on the closing price of the common stock on the NYSE on that date.
In general, share awards under the Plan are based on the fair market value of the common shares on the date of the award. For awards of options, the exercise price of the options may not be less than the fair market value on the date of the grant of the option award. Under the Plan, the “fair market value” generally is the mean between the high and low selling prices of the common stock on the date of determination, as reported on the NYSE.

63
Securities Available
The shares of common stock that may be delivered under the Plan ~~will be~~are (1) shares of Fannie Mae’s authorized but unissued common stock, (2) treasury shares, or (3) shares of common stock purchased by Fannie Mae in the open market. The maximum number of shares of common stock that may be delivered under the Plan is 40,000,000 shares. Of these shares, no more than 2,000,000 shares may be used for (1) restricted stock grants that vest in less than three years, (2) performance share awards with performance cycles of less than one year, or (3) stock bonuses that vest 100% immediately. As of ~~December 31, 2002,~~October 22, 2007, there were ~~11,569,275~~30,025,567 shares of common stock ~~authorized by shareholders~~available for ~~use, but not used in making grants,~~delivery under the ~~Fannie Mae Stock Compensation~~ Plan, 1,433,784 of ~~1993. Shares remaining~~which were available under the ~~1993 plan will not be used for future awards after shareholder approval of the 2003 Plan.~~
2,000,000 share limit.
If any award expires or is canceled or terminated without having been exercised in full, or does not vest or is not delivered, the unpurchased, nonvested, or undelivered shares of common stock subject to the award will again bebecome available under the Plan. Shares used to satisfy a tax withholding obligation,
31
~~will~~ however, are not be available for additional awards under the Plan.
Administration of the Plan
The Plan ~~will be~~is administered by the Compensation Committee (the “Committee”), which is composed entirely of independent directors. ~~Except with respect to the automatic awards for nonemployee directors (described below under “Nonmanagement Director Stock Options” and “Nonmanagement Director Restricted Stock”), the~~The Committee ~~will have~~has full authority to determine the employees eligible to receive awards and the terms and conditions of any award consistent with the express limits of the Plan. Subject to ~~certain~~ limitations specified in the Plan, the Committee may authorize any adjustment in the vesting schedule, restrictions upon, or term of an award.
The Committee may make administrative amendments to the Plan, and the Board generally may make non-administrative amendments. If, however, any amendment of the Plan would either materially increase benefits accruing under the Plan or materially increase the aggregate number of shares of common stock that may be issued under the Plan, then, to the extent deemed necessary or advisable by the Board or as required by law or the rules of the NYSE, ~~such~~the amendment will be subject to shareholder approval.
Employee Stock Options
The Plan authorizes the grant to employees of ISOs or ~~NQOs,~~nonqualified stock options, both of which are exercisable for shares of common stock. The exercise price of an option may not be less than the fair market value of a share of common stock on the award date. ~~In general, the “fair market value” is the mean between the high and low selling prices of the common stock on the date of determination, as reported on the NYSE.~~ An option may not be modified so as to reduce the exercise price of the option.
The period during which an ISO may be exercised may not extend more than ten years from the date of grant. An option that is not exercised before expiration of the option period will terminate. No grants ~~will~~may be made to employees under the Plan after ~~2013.~~
the termination of the Plan.
The Committee ~~will determine~~determines an option’s exercise and vesting schedule. The Committee may grant options that will become exercisable and fully vested upon a change in control of Fannie Mae.
No option grants have been made to employees since May 2005.
Stock Appreciation Rights
Under the Plan, SARs may be granted in three ways: (1) concurrently with the grant of another award, or(2) as an additional element of an outstanding award, or (3) separately as a stand-alone SAR. Each stand-alone SAR will specify the period in which it can be exercised, and the Committee may extend the period.
A SAR related to another award generally will be exercisable at the same time as the related award. The Committee, in its discretion, may grant stand-alone SARs that will become immediately exercisable and fully vested upon a change in control of Fannie Mae.

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~~Employee~~ Restricted Stock Awards to Employees
The Committee may grant ~~to employees~~ shares or units of restricted stock to employees and impose restrictions on the restricted stock. Promptly after the lapse of restrictions on restricted stock, shares of common stock will be delivered or credited to the employee or other person entitled under the Plan to receive the shares.
~~Generally speaking, restricted~~
Restricted stock generally may not be sold, transferred or encumbered until the restrictions have lapsed. Holders of restricted stock may be entitled to ~~cash~~dividends on the restricted stock even though the award has not vested at the time the dividend ~~and~~is paid. Holders of shares of restricted stock (but not units) also may be entitled to voting rights even though the award ishas not ~~vested.~~vested at the time of the vote. Restricted stock as to which the restrictions have not lapsed generally will be forfeited upon an employee’s termination of employment. Restrictions on restricted stock may lapse after the termination of employment under certain circumstances or, if specified in the award, upon a change in control of Fannie Mae.
Performance Share Awards and Stock Bonuses
The Committee may grant performance share awards to employees. AnAny award will specify the terms and conditions of the award, the period for the performance share award, and the measure of the performance of Fannie Mae or the employee. The Committee may make adjustments to the measures of performance to compensate for any significant changes in accounting practices, tax laws, or other laws or regulations that alter or affect the computation of the measures. The award may provide for payments upon a change of
32
control or termination of employment in some circumstances.
The Committee in its discretion also may grant stock bonuses to any employee.
~~Nonmanagement~~Non-Management Director Stock ~~Options~~Option Awards
~~Beginning~~
Effect of Plan Amendment on Stock Option Awards to Non-Management Directors
If the Plan Amendment is approved, no annual stock option awards will be made with respect to the annual meetings that would have been held in ~~2004~~2005 or 2006. Further, under the Plan Amendment, the Plan’s current provision for automatic grants of stock options to the non-management directors in 2007 and ~~ending upon~~future years will be discontinued. Accordingly, these automatic option grants will not be made under the ~~termination~~Plan if the Plan Amendment is approved.
Current Plan Provision Relating to Stock Option Awards to Non-Management Directors
Under the current provision of the Plan, ~~in 2013,~~ each ~~nonmanagement~~non-management director ~~will~~is entitled to receive, animmediately following each annual ~~NQO~~meeting of shareholders, a nonqualified stock option award to purchase 4,000 shares of common stock. If a director holds office only for a portion of a year, the grant ~~will be~~is prorated for that year. The exercise price ~~will be~~is the fair market value of the common stock on the award date. Each option ~~will vest 25 percent~~vests 25% per year over four years ~~starting~~beginning on the first anniversary of the date of the grant. Vesting ~~will accelerate~~accelerates upon ~~termination~~a director’s departure from the Board for any reason.
The Committee also may grant additional option awards to ~~nonemployee~~non-management directors as appropriate, based on market compensation data or other information or circumstances.
This provision will continue to apply following the Plan Amendment.
There have been no grants of option awards to non-management directors since the grants relating to the annual meeting of shareholders held in 2004.
~~Nonmanagement~~Non-Management Director Restricted Stock Awards
Effect of Plan Amendment on Restricted Stock Awards to Non-Management Directors
If the Plan Amendment is approved, the current provision of the Plan relating to annual restricted stock awards to be made to non-management directors will be eliminated, and neither of the restricted stock awards described under “Current Plan Provisions Relating to Restricted Stock Awards to Non-Management Directors” will be made.

65
~~Each nonmanagement~~
Under the Plan Amendment, each non-management director will receive an annual grant of restricted stock units immediately following the annual meeting of shareholders, beginning with the annual meeting of shareholders in 2008. The aggregate fair market value on the date of grant for the annual meeting of shareholders in 2008 will equal $135,000. The value of the grant for future years will continue to be $135,000, unless the Board determines, prior to the annual meeting of the shareholders for that year, that it will use a different value. A non-management director who is newly appointed or elected after an annual meeting of shareholders will receive a grant of restricted stock units prorated based on the number of full calendar months between the annual meeting of shareholders that took place immediately prior to the director’s appointment or election and the date of the director’s appointment or election.
Restricted stock granted under this provision of the Plan Amendment generally may not be sold, transferred, or encumbered. The restricted stock will vest in full, or 100%, on the day before the next annual meeting of shareholders, but in no event later than one year after the grant. Unvested restricted stock is subject to forfeiture if a director ceases to be a director for any reason other than death or total disability.
Current Plan Provision Relating to Restricted Stock Awards to Non-Management Directors
Under the current provision of the Plan, each non-management director who was a director immediately following the annual meeting of ~~the~~ shareholders in 2006 ~~or 2010 will be granted,~~was entitled to receive, on the date of the annual meeting, an award of restricted stock ~~having~~with an aggregate fair market value on the date of grant equal to ~~$75,000 in 2006 and $90,000 in 2010. A nonmanagement~~$75,000. At this time, no awards have been made under this provision. In addition, each non-management director who is a director immediately following the annual meeting of shareholders in 2010 will be entitled to receive, on the date of the annual meeting, an award of restricted stock with an aggregate fair market value on the date of grant equal to $90,000. Awards to non-management directors who are newly appointed or elected after the annual meeting of shareholders in 2006 ~~and~~or 2010 ~~will receive an award of restricted stock~~are prorated ~~according to~~based on the number of partial or full calendar months remaining in the four-year award cycle after the date of the director’s appointment.
~~Generally speaking,~~
If the Plan Amendment is approved, the restricted stock ~~granted under this provision may~~awards relating to 2006 and 2010 will not be ~~sold, transferred, or encumbered.~~ granted. Instead, the awards of restricted stock described above under “Effect of Plan Amendment on Restricted Stock Awards to Non-Management Directors” will be made annually beginning immediately following the annual meeting of shareholders in 2008.
The restricted stock ~~will vest~~vests at athe rate of ~~25 percent~~25% per year on the day before each annual meeting of shareholders (or by the appropriate pro rata percentage for directors ~~newly~~who are appointed or elected after the annual meeting in 2006 or 2010). Unvested restricted stock is subject to forfeiture ~~upon termination of directorship~~if a director ceases to be a director for ~~reasons~~any reason other than death, total disability, or not being renominated after age ~~70.The~~70.
The Committee also may grant additional restricted stock awards ~~under this provision~~ to ~~nonmanagement~~non-management directors based on market compensation data or other information or circumstances. This provision will continue to apply following the Plan Amendment.
Deferred Compensation
Effect of Plan Amendment
Under the Plan Amendment, each non-management director will have the right to elect to defer receipt of the restricted stock units. Each non-management director also will have the right to elect to convert the director’s annual retainer into deferred shares of common stock. In either case, dividend equivalents for the deferred shares will be credited to the director’s account and reinvested in additional deferred shares. The deferred shares of common stock will be paid to the director six months after the director ceases to be a director and separates from service with us.
Current Plan
Under the current provisions of the Plan, non-management directors do not have the right to defer receipt of awards of shares of restricted stock, nor do they have the right to convert their annual retainers or other directors’ fees into deferred shares.

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Certain Federal Income Tax Consequences
The following summary generally describes the ~~current~~ principal federal income tax consequences of certain events under the Plan. The summary is general in nature and is not intended to cover all tax consequences that may apply to a particular employee or director, or to Fannie Mae. The provisions of the Code and regulations thereunder relating to these matters are complicated and subject to change.
Stock Options and SARs.A grantee ~~will~~is not be subject to any federal income tax upon the grant of an option or SAR pursuant to the Plan.
A grantee ~~will~~does not recognize income for federal income tax purposes (and Fannie Mae ~~will~~is not be entitled to any federal income tax deduction) as a result of the exercise of an ISO and the related transfer of shares to the employee. However, the excess of the fair market value of the shares transferred upon the exercise of an ISO over the exercise price for such shares generally ~~will constitute~~constitutes an item of alternative minimum tax adjustment to the employee for the year in which the option is exercised. Thus, certain employees may have an increase in their federal income tax liability as a result of the exercise of an ISO under the alternative minimum tax rules of the Code.
If the shares received pursuant to the exercise of an ISO are disposed of within two years from the date the ISO is granted or within one year from the date the ISO is exercised (the “ISO holding periods”), the employee ~~will recognize~~recognizes ordinary income equal to the excess of the amount realized on the dispositions over the price paid for the shares. In such case, Fannie Mae ordinarily ~~will be~~is entitled to a tax deduction for the same amount, provided that certain income tax reporting requirements are satisfied.
If the shares received upon the exercise of an ISO are disposed of after the ISO holding periods have been satisfied, long-term capital gain or long-term capital loss is realized on the disposition. Fannie
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Mae ~~will~~is not be entitled to a federal income tax deduction as a result of the disposition.
Ordinary income ~~will be~~is recognized by the employee upon exercise of a ~~NQO.~~nonqualified stock option. Generally, the ordinary income realized is the excess, if any, of the fair market value of the shares of common stock received upon the exercise of the ~~NQO~~nonqualified stock option over the exercise price. An employee will also recognize ordinary income upon exercising a SAR equal to the total of any cash received and the fair market value of any shares of the common stock received.
Income tax withholding from the employee is required on the income recognized by the employee upon exercise of a ~~NQO~~nonqualified stock option or SAR. Fannie Mae ordinarily ~~will~~is be entitled to a deduction for federal income tax purposes equal to the ordinary income recognized by the employee upon the exercise of a ~~NQO~~nonqualified stock option or SAR, or the ordinary income recognized by the employee on the disposition of common stock acquired pursuant to the exercise of an ISO, provided that certain income tax reporting requirements are satisfied.
Restricted Stock.  An employee generally will recognize ordinary income in an amount equal to the excess, if any, of the fair market value of the shares subject to the restricted stock grant at the time of vesting over the amount, if any, paid for such shares. (Different rules not discussed herein would apply in the event an employee makes an election under Section 83(b) of the Code.) Income tax withholding from employees is required on income recognized by the employee upon vesting of restricted stock. Dividends paid to an employee on shares of restricted stock are treated as ordinary income of the employee in the year received. Fannie Mae ordinarily will be entitled to a deduction for federal income tax purposes equal to the ordinary income recognized by the employee,provided that certain income tax reporting requirements are satisfied.
Performance Share Awards and Stock Bonuses.  An employee generally is not required to recognize income upon the grant of a performance share award or the award of a stock bonus. Instead, ordinary income is required to be recognized upon the issuance of shares pursuant to the terms of the award in an amount equal to the fair market value of the shares of common stock received. Income tax withholding from employees is required on income recognized upon the issuance of shares pursuant to a performance share award or a stock bonus award. Fannie Mae ordinarily will be entitled to a deduction for federal income tax purposes equal to

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the ordinary income recognized by the employee, provided that certain income tax reporting requirements are satisfied.
Gain or Loss on Sale or Exchange of Shares.  In general, gain or loss from the sale or exchange of shares of common stock granted or awarded under the Plan will be treated as capital gain or loss, provided that the shares are held as capital assets at the time of the sale or exchange. However, as discussed above, if the ISO holding periods are not satisfied at the time of the sale or exchange of shares received pursuant to the exercise of an ISO, the employee generally will be required to recognize ordinary income upon such disposition.
Section 409A
~~Payments Upon Change in Control.~~ ~~Where payments~~
Section 409A of the Internal Revenue Code, which was added by the American Jobs Creation Act of 2004, provides certain new requirements for nonqualified deferred compensation arrangements. These include new requirements with respect to an individual’s election to defer compensation and the individual’s selection of the timing and form of distribution of the deferred compensation. Section 409A also generally provides that distributions must be made upon the occurrence of certain ~~employees~~events (e.g., the individual’s separation from service, a predetermined date, or the individual’s death). Section 409A imposes restrictions on an individual’s ability to change his or her timing or form of distribution after the compensation has been deferred. For certain officers, Section 409A requires that distributions that are ~~contingent~~the result of the officer’s separation from service with the employer must be delayed for six months after the officer’s separation from service.
Awards granted under the Plan with a deferral feature are subject to the requirements of Section 409A. If an award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that award may recognize ordinary income on ~~a change in control exceed limits specified in~~ the ~~Code,~~amounts deferred under the ~~employee~~award, to the extent vested, which may be prior to when the compensation is ~~liable for a 20 percent excise~~actually or constructively received. Also, if an award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on ~~and Fannie Mae or other entity making the payment generally is not entitled to any deduction for, a specified portion of~~compensation recognized as ordinary income, as well as interest on such payments. If the Committee, in its discretion, grants awards the vesting of which is accelerated by a change in control of Fannie Mae, such accelerated vesting would be relevant in determining whether the excise tax and deduction disallowance rules would be triggered.deferred compensation.

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~~The Board of Directors recommends that shareholders vote~~New Plan Benefits
~~for~~ ~~the approval of the~~ Fannie Mae Stock Compensation Plan of ~~2003.~~2003
The following table shows the amount of benefits that will be received by our named executives, directors, and other employees under the Plan as proposed to be amended, to the extent that those benefits are determinable. Although discretionary grants to our named executives, directors, and other employees are permitted under the Plan, the amounts of any discretionary grant are not determinable at this time. Accordingly, the amount presented in the following table reflects only the automatic annual grant of restricted stock units to non-management directors following each annual meeting of shareholders until the termination date of the Plan in 2013, assuming (1) a fair market value for the grants of $135,000 and (2) the number of our non-management directors continues to total 12. The amount presented in the table may be higher or lower if the Board determines to change the fair market value of this automatic grant, or if the number of non-management directors on our Board increases or decreases.

Name and Principal Position
Dollar Value ($) Number of Units

Non-Executive Director Group $ 9,720,000 Not determinable
Options Received Under Fannie Mae Stock Compensation Plan of 2003
The following table shows the total amount of options granted to our named executives, directors, other employees and the identified groups under the Plan to date.
Name and Principal Position
Stock Options Granted
• Daniel Mudd, President and Chief Executive Officer and Director Nominee 105,749
• Robert Blakely, Executive Vice President 0
• Robert Levin, Executive Vice President and Chief Business Officer and a former Chief Financial Officer 100,613
• Peter Niculescu, Executive Vice President— Capital Markets 59,425
• Beth Wilkinson, Executive Vice President, General Counsel and Corporate Secretary 0
• Michael Williams, Executive Vice President and Chief Operating Officer 73,880
• Julie St. John, Former Executive Vice President and Chief Information Officer 73,880
• Stephen B. Ashley, Director Nominee 4,000
• Dennis R. Beresford, Director Nominee 0
• Louis J. Freeh, Director Nominee 0
• Brenda J. Gaines, Director Nominee 0
• Karen N. Horn, Director Nominee 0
• Bridget A. Macaskill, Director Nominee 0
• Leslie Rahl, Director Nominee 5,333
• John C. Sites, Jr., Director Nominee 0
• Greg C. Smith, Director Nominee 666
• H. Patrick Swygert, Director Nominee 4,000
• John K. Wulff, Director Nominee 2,000
• Rebecca Senhauser (former employee) 19,080
• Barbara Spector (employee) 0
• Recipients of 5% of options 0
• Executive Group (all current executive officers) 426,846
• Non-Executive Director Group (all current non-management directors) 19,999
• Non-Executive Officer Employee Group 876,692

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34
Equity Compensation Plan Information
The following table provides information ~~related~~as of December 31, 2006 with respect to shares of common stock that may be issued under our existing equity compensation plans.
~~Equity Compensation Plan Information~~
~~(as of December 31, 2002)~~
Plan category

Number of securities to be issued upon exercise of outstanding options, warrants and rights
(#)

Weighted-average exercise price of outstanding options, warrants and rights
($)

Number of securities remaining available
for future issuance
under equity compensation plans
(excluding securities reflected in first
column)
(#)
Equity compensation plans approved by shareholders

25,131,000

$
59.16

16,297,084 (1)
Equity compensation plans not approved by shareholders

N/A


N/A

N/A (2)



Total

25,131,000

$
59.16

16,297,084



~~Notes to Equity Compensation Plan Information~~

As of December 31, 2006
Number of
Securities
Remaining
Number of
Available
Securities to
for Future Issuance
be Issued upon
Weighted-Average
under Equity
Exercise
Exercise Price of
Compensation
of Outstanding
Outstanding
Plans (Excluding
Options,
Options,
Securities
Warrants and
Warrants and
Reflected in First
Plan Category
Rights (#) Rights ($) Column) (#)

Equity compensation plans approved by stockholders 22,234,887 ⁽¹⁾ $ 70.44 ⁽²⁾ 44,075,454 ⁽³⁾
Equity compensation plans not approved by stockholders N/A N/A N/A

Total 22,234,887 $ 70.44 44,075,454

⁽¹⁾ This amount includes outstanding stock options; restricted stock units; the maximum number of shares issuable to eligible employees pursuant to our stock-based performance award; shares issuable upon the payout of deferred stock balances; the maximum number of shares that may be issued pursuant to performance share program awards made to members of senior management for which no determination had yet been made regarding the final number of shares payable; and the maximum number of shares that may be issued pursuant to performance share program awards that have been made to members of senior management for which a payout determination has been made but for which the shares were not paid out as of December 31, 2006. Outstanding awards, options, and rights include grants under the 1993 Plan, the 2003 Plan, and the payout of shares deferred upon the settlement of awards made under the 1993 Plan and a prior plan.

~~Shareholder Approved Plans: 4,727,809~~⁽²⁾ The weighted average exercise price is calculated for the outstanding options and does not take into account restricted stock units, stock-based performance awards, deferred shares or the performance shares described in footnote (1).
⁽³⁾ This number of shares consists of 11,960,258 shares available under the 1985 Employee Stock Purchase Plan and ~~11,569,275~~32,115,196 shares available under the Stock Compensation Plan of ~~1993.~~
~~(2)~~ ~~Fannie Mae has no equity compensation plans~~2003 that ~~have not received shareholder approval.~~may be issued as restricted stock, stock bonuses, stock options, or in settlement of restricted stock units, performance share program awards, stock appreciation rights, or other stock-based awards. No more than 1,432,902 of the shares issuable under the Stock Compensation Plan of 2003 may be issued as restricted stock or restricted stock units vesting in full in fewer than three years, performance shares with a performance period of less than one year, or bonus shares subject to similar vesting provisions or performance periods.

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~~PROPOSAL~~SHAREHOLDER PROPOSALS
Proposal 4: ~~SHAREHOLDER PROPOSAL~~Proposal to Require Shareholder Advisory Vote on Executive Compensation
American Federation of State, County and Municipal Employees, 1625 L Street, N.W., Washington, DC 20036, beneficial owner of 37,213 shares has submitted the following proposal for consideration at the annual meeting:
RESOLVED, that shareholders of Fannie Mae urge the board of directors to adopt a policy that Company shareholders be given the opportunity at each annual meeting of shareholders to vote on an advisory resolution, to be proposed by Fannie Mae’s management, to ratify the compensation of the named executive officers (“NEOs”) set forth in the proxy statement’s Summary Compensation Table (the “SCT”) and the accompanying narrative disclosure of material factors provided to understand the SCT (but not the Compensation Discussion and Analysis). The proposal submitted to shareholders should make clear that the vote is non-binding and would not affect any compensation paid or awarded to any NEO.
SUPPORTING STATEMENT
In our view, senior executive compensation at Fannie Mae has not always been structured in ways that best serve stockholders’ interests. Previous compensation arrangements richly rewarded executives for reporting higher earnings with no requirement to return the compensation in the event of restatement. Inflated earnings allowed Fannie Mae executives to maximize their bonuses but proved harmful to shareholders. The restatement at Fannie Mae reduced earnings by more than $6 billion and resulted in Fannie Mae being out of compliance with Section 404 of Sarbanes-Oxley for more than two years.
We believe that existing U.S. corporate governance arrangements, including SEC rules and stock exchange listing standards, do not provide shareholders with enough mechanisms for providing input to boards on senior executive compensation. In contrast to U.S. practices, in the United Kingdom, public companies allow shareholders to cast an advisory vote on the “directors’ remuneration report,” which discloses executive compensation. Such a vote isn’t binding, but gives shareholders a clear voice that could help shape senior executive compensation.
Currently U.S. stock exchange listing standards require shareholder approval of equity-based compensation plans; those plans, however, set general parameters and accord the compensation committee substantial discretion in making awards and establishing performance thresholds for a particular year. Shareholders do not have any mechanism for providing ongoing feedback on the application of those general standards to individual pay packages. (See Lucian Bebchuk & Jesse Fried,Pay Without Performance 49 (2004))
Similarly, performance criteria submitted for shareholder approval to allow a company to deduct compensation in excess of $1 million are broad and do not constrain compensation committees in setting performance targets for particular senior executives. Withholding votes from compensation committee members who are standing for reelection is a blunt and insufficient instrument for registering dissatisfaction with the way in which the committee has administered compensation plans and policies in the previous year.
Accordingly, we urge Fannie Mae’s board to allow shareholders to express their opinion about senior executive compensation at Fannie Mae by establishing an annual referendum process. The results of such a vote would, we think, provide Fannie Mae with useful information about whether shareholders view the company’s senior executive compensation, as reported each year, to be in shareholders’ best interests.
We urge shareholders to vote for this proposal.
FANNIE MAE’S COMMENT
After careful consideration, and recognizing the appropriate interest that our shareholders have in providing input to the Board about our executive compensation practices, the Board recommends voting against the proposal providing an advisory vote on executive compensation.

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~~Mrs.~~
Summary:  Consistent with Fannie Mae’s federal charter, the Compensation Committee and the Board exercise oversight of compensation on an ongoing basis, taking into consideration the competitive demands of the marketplace, the overall corporate strategy and the performance of executives against corporate goals. Currently our regulator also reviews the proposed levels of non-salary compensation for certain executives. We believe effective mechanisms to communicate with the Board about compensation-related concerns are available to shareholders, including direct communication via addresses available in this proxy, approval of equity plans, and election of directors by a majority standard. We also believe that adopting an advisory vote without it being adopted on a uniform basis by other public companies would place Fannie Mae at a competitive disadvantage and could be premature as unique U.S. legal and regulatory considerations have not been fully examined. For the foregoing reasons, the Board recommends that shareholders vote against the current proposal providing for an advisory vote on executive compensation.
Fannie Mae’s Federal Charter Vests Executive Compensation Responsibility in the Board
The Fannie Mae Charter Act states that“the board of directors of the corporation shall have the power to select and appoint or employ...officers...and to cause the corporation to pay such compensation to them for their service as the board of directors determines reasonable and comparable with compensation for employment in other similar businesses..., except that a significant portion of potential compensation for all executive officers shall be based on the performance of the corporation.”
The Board has delegated power to the Compensation Committee, which is composed entirely of independent members of the Board, to review and make recommendations to the Board concerning the compensation of officers and the compensation policy for employees. In fulfilling the obligation of our federal charter, the Compensation Committee considers the following when determining executive compensation: corporate as well as individual performance, a range of competitive market data, including, with respect to the Chief Executive Officer, data provided by an independent compensation consultant for the Board, the importance of each executive’s role in the company, competition for individuals with the experience and skill set of each executive, and related market forces, among other factors. Under our Charter, our regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), must approve termination payments to our executives. In addition, pursuant to the terms of an agreement with OFHEO, non-salary compensation actions are provided for OFHEO’s review prior to award.
We believe the continuous oversight of executive compensation provided by our Compensation Committee, as well as the review by our regulator of certain executive compensation arrangements provides an effective governance model over executive compensation.
Shareholders Are Able to Provide Targeted, Continuous Feedback to the Board
The Compensation Discussion and Analysis required under the new SEC rules regarding executive compensation disclosure provides increased transparency of our approach to compensating executives and provides shareholders with more information to evaluate compensation decisions. If a shareholder has a concern with respect to an aspect of the executive compensation as disclosed in our Compensation Discussion and Analysis or summary compensation table, we believe effective mechanisms currently exist for the shareholder to provide feedback to identify the specific compensation-related concerns.
As opposed to the general nature of a proposed,once-a-year, “for” or “against” advisory vote, which may not clearly communicate the shareholder views on the type, amounts, or preferred improvements to our executive compensation, shareholder feedback on compensation-related concerns may be sent directly to the Board atboard@fanniemae.com or by sending correspondence to: Board of Directors,c/o the Office of the Secretary of the Corporation, Mailstop: 1H 2S 05, 3900 Wisconsin Avenue, NW, Washington, DC20016-2892. In addition, our shareholders have the ability to influence the aggregate amount and types of equity compensation available to be awarded to our executives through their review and approval of our stock compensation plans. Moreover, our Board recently approved amendments to our bylaws to adopt majority voting in the election of directors. By allowing shareholders to vote “for” or “against” each director, shareholders can hold directors accountable with respect to executive compensation.

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We believe that, combined, the ability to provide direct feedback to the Board, votes on equity compensation plans, and ability to vote “against” a director are more effective mechanisms for shareholders to provide the Board with feedback about executive compensation than the proposedonce-a-year advisory vote.
Advisory Voting Should be Adopted Within a Uniform Legal and Regulatory Framework
While well-intentioned, the practice suggested by the proponent, if adopted on acase-by-case basis as proposed and not by all public companies, would create inequities and a competitive disadvantage for us. The advisory vote process is mandated by law in the United Kingdom, or U.K., and applies to all public companies. If we adopted an advisory vote on executive compensation, there is no assurance that other companies would follow. This could put us at a competitive disadvantage by giving the impression that compensation opportunities are more restricted at Fannie Mae than at our competitors.
In addition, further examination to determine the consequences of implementing an advisory vote process in the U.S. should be conducted, given certain aspects of the U.S. legal and regulatory structure as compared with the U.K. For example, the ability for U.S. public companies to discuss compensation information with individual shareholders before the information is publicly available may be hindered by current legal requirements. Additionally, shareholding is more dispersed in the U.S. than in the U.K. Currently, various task forces made up of investor groups and corporations are examining these issues in connection with the implementation of an advisory vote process in the U.S.
We believe a better time to consider this proposal would be after a consensus has been formed on the best way to implement an advisory vote process in the U.S. regulatory and legal system. In the meantime, the Board believes that implementation of this proposal is premature as the legal and regulatory considerations have not been fully examined and advisory voting on executive compensation would not be applied uniformly.
The Board of Directors recommends that shareholders
voteAGAINSTthis proposal.

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Proposal 5: Proposal to Authorize Cumulative Voting
Evelyn Y. Davis, Editor, Highlights and Lowlights, Watergate Office Building, 2600 Virginia ~~Avenue, NW,~~Ave., N.W., Suite 215, Washington, DC 20037, ~~who owns~~owner of 600 shares, ~~of Fannie Mae common stock,~~ has advised Fannie Mae that the following resolution will be presented for approval of the shareholders at the annual ~~meeting. She has submitted the following statement in support of such resolution:~~
meeting:
RESOLVED:
~~“That~~ “That the stockholders of ~~Fannie Mae,~~FNMA, assembled in Annual Meeting in person and by proxy, hereby request the Board of Directors to take the necessary steps to provide for cumulative voting in the election of directors, which means each stockholder shall be entitled to as many votes as shall equal the number of shares he or she owns multiplied by the number of directors to be elected, and he or she may cast all of such votes for a single candidate, or any two or more of them as he or she may see fit.”
“The many problems FNMA has been having make cumulative voting of the UTMOST importance!!!
“REASONS:
“Many states have mandatory cumulative voting, so do National Banks.”
“In addition many corporations have adopted cumulative voting.”
“~~Last year~~During 2004 the owners of ~~162,908,583~~........* shares, representing approximately ~~22.096%~~forty.3%-40.3% of shares voting voted FOR this proposal.”
“
If you AGREE, please mark your proxy FOR this resolution.”
FANNIE MAE’S COMMENT
Our Board has considered carefully the possible impacts of the proposal to reinstate cumulative voting, and has determined that the proposal is not in the best interests of all of our stockholders. Therefore, the Board recommends a vote against the proposal.
Summary:  The purpose of cumulative voting is to permit a minority of shareholders to elect one or more directors. Directors elected by minority shareholders might adopt positions that are in the best interests of minority, special interest shareholders, as opposed to all shareholders. As a result, we believe the proposal could impair the functioning of the Board in the interests of the shareholders as a whole.
Directors elected by minority shareholders using cumulative voting could adopt positions that are in the best interests of minority, special interest shareholders, as opposed to all shareholders.   Like most other U.S. corporations, each share of our common stock permits the holder to cast one vote in the election of each candidate. Under cumulative voting, if a shareholder wished, he or she could cast 12 votes for each owned share for one candidate. This could allow a well-organized minority shareholder group to elect a director who advocates the group’s positions, as opposed to positions that are in the best interests of all shareholders. The election of special interest directors could weaken the Board’s ability to work effectively together for the best interests of the shareholders. Allowing each holder of shares of common stock to have one vote per share for each director nominee makes the election process more fair by allowing the vote of a majority of the outstanding shares to control the outcome, resulting in a more effective Board.
We have recently adopted majority voting.  To ensure director accountability to all of our shareholders, our Board recently adopted a majority voting standard for the election of directors. Except in an election in which the number of nominees for director exceeds the number of directors to be elected, each director who fails to receive more votes for election than against must offer to resign.

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~~Management Comment~~
Shareholders ~~of Fannie Mae~~eliminated cumulative voting at the Company in 1988 and since then have consistently rejected proposals to reinstate cumulative voting.  Our shareholders voted overwhelmingly at ~~the~~our 1988 annual meeting to eliminate cumulative voting. In each of the ~~last 14years, they~~16 annual meetings since that time, our shareholders have rejected proposals similar to this one to reinstate cumulative voting.
The Board of Directors believes that the “one share, one vote” or straight voting method of electing directors results in a more efficient and unified board, a board where each director represents the interests of all shareholders.
Under the cumulative voting method for election of Fannie Mae’s directors, a shareholder would be entitled to cast votes equal to the number of shares that the shareholder owns multiplied by the number of directors to be elected. Thus, all of a shareholder’s votes could be cast for a single candidate or distributed among several nominees. If a shareholder wished, he or she could cast all 13 votes for each owned share for one candidate. This method could permit a well-organized minority shareholder bloc to concentrate votes and elect one or more candidates to the Fannie Mae Board. If this occurs, the operation of the Board could become fractionalized, resulting in inefficient functioning and serious harm to corporate operations. It is for this reason that the Board recommended eliminating cumulative voting in 1988 and now, as it did in 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2000, 2001, and 2002 recommends against the reimposition of cumulative voting.
Unless shareholders specify otherwise in the proxy, proxies solicited by the Board of Directors will be voted by the proxy holders at the annual meeting against this proposal. A majority of the votes cast at the annual meeting is required to approve this proposal.
The Board of Directors recommends that shareholders
~~vote~~
Vote~~against~~AGAINSTthis proposal.

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~~Other Matters~~OTHER MATTERS
As of the date of this proxy statement, the Board of Directors knows of no business that will come before the 2007 annual meeting other than that described in this proxy statement. If other business is properly brought before the 2007 annual
meeting, the Board intends that the proxy holders will vote proxies ~~in the accompanying form~~ on such matters according to the judgment of the proxy ~~holders (except~~holders.
SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS FOR 2008
Because we expect to hold our 2008 annual meeting of shareholders in the spring of 2008, a shareholder who intends to submit a proposal for ~~those voted by Fidelity Management Trust Company, as Trustee of the Trust established under the ESOP, and Equiserve Trust Company, N.A., Escrow Agent under the~~
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~~Escrow Agreements executed in accordance with restricted stock awards under the Fannie Mae Stock Compensation Plan of 1993).~~
~~Shareholder Proposals and Nominations for 2004~~
~~Any shareholder proposal intended to be presented~~consideration at the ~~2004~~2008 annual meeting must submit the proposal so that we receive it by no later than November 30, 2007, in order for the proposal to be ~~received by Fannie Mae~~considered for inclusion in the proxy statement ~~no later than December 19, 2003.~~ and form of proxy that the Board of Directors will distribute in connection with that meeting. The shareholder proposal must be delivered to, or mailed and received by, Fannie Mae Shareholder Proposal,c/o Office of the Secretary, Fannie Mae, Mail Stop 1H-2S/05, 3900 Wisconsin Avenue, NW, Washington, DC20016-2892.
If a shareholder does not wish to have the proposal included in the proxy statement but still wishes to present a proposal at the ~~2004~~2008 annual meeting, ~~and the proposal is not intended to be included in the proxy statement,~~other than a director nomination, the shareholder must give written notice to us in accordance with Section 3.12 of our bylaws. The written notice should be sent via U.S. mail addressed to Fannie Mae Shareholder Proposal,c/o Office of the Secretary, Fannie Mae, Mail Stop 1H-2S/05, 3900 Wisconsin Avenue, NW, Washington, DC20016-2892. In the case of proposals for the 2008 annual meeting of shareholders, the Secretary must receive written notice of the proposal not earlier than the close of business on January 21, 2008, and not later than the ~~dates set forth under Section 3.12~~close of ~~Fannie Mae’s bylaws. In general, those dates are either 60 days or 90 days before the date of the 2004 annual meeting as described in the bylaws.~~business on March 21, 2008. The written notice must include or be accompanied by ~~specific information regarding~~a brief description of the proposal, the reasons for bringing the proposal before the annual meeting, the shareholder’s name and address, the class and number of shares beneficially owned by the shareholder, and any material interest of the ~~shareholder.~~shareholder in the proposal. If a shareholder does not comply with Section 3.12 of ~~the~~our bylaws, the chair of the ~~2004~~2008 annual meeting may declare the proposal not properly brought before the meeting. ~~If other matters properly come before~~
Any shareholder who wishes to nominate a director at the ~~2004~~2008 annual meeting must submit written notice in accordance with Section 4.20 of our bylaws and also must comply with the ~~holders~~other provisions and requirements of ~~proxies~~Section 4.20. Written notice of a proposal for the ~~2004 annual meeting will use discretionary voting authority with respect~~nomination of a person to ~~such matters.~~
~~Shareholder nominations of candidates for election~~serve as ~~directors~~a director must be ~~made~~received by the ~~same deadlines described above.~~Office of the Secretary not earlier than the close of business on January 21, 2008 and not later than the close of business on March 21, 2008. The written notice ~~must include (1)~~ should be directed to Fannie Mae Director Nominees,c/o Office of the Secretary, Fannie Mae, Mail Stop 1H-2S/05, 3900 Wisconsin Avenue NW, Washington, DC20016-2892.
Alternatively, any shareholder who wishes to submit a candidate for consideration by the Nominating and Corporate Governance Committee should submit a written recommendation to the Chairman of the Nominating Corporate Governance Committee,c/o Office of the Secretary, Fannie Mae, Mail Stop 1H-2S/05, 3900 Wisconsin Avenue NW, Washington, DC20016-2892.
In the case of a director nomination or recommendation, the written notice shall set forth:
• the name, age, business address and residence address of each nominee proposed in the notice,
• the principal occupation or employment of each nominee,
• the class of securities and the number of shares of Fannie Mae capital stock which are beneficially owned by each nominee,
• any other information concerning each nominee that would be required under SEC rules in a proxy statement soliciting proxies for the election of that nominee as a director, and
• a statement whether the nominee, if elected, intends to tender, promptly following the nominee’s election or re-election, an irrevocable resignation effective upon the nominee’s failure to receive the required vote

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for re-election at the next meeting of shareholders at which the nominee faces re-election and upon acceptance of such resignation by the Board of Directors.
In the case of a director nomination, the notice shall be accompanied by a signed consent of each nominee ~~(2)~~to serve as a director if the ~~principal occupation~~nominee is elected.
We also may require any proposed nominee to furnish such other information as may be reasonably required to determine whether the proposed nominee is eligible to serve as an independent director or ~~employment~~that could be material to a reasonable shareholder’s understanding of the ~~nominee,~~nominee’s independence or lack thereof.
A copy of our bylaws is on file with the SEC and ~~(3) all other information about the nominee that would~~may be ~~required to be included in a proxy statement soliciting proxies for the election of directors, as well as a written consent~~obtained from the ~~nominee to being named~~Secretary of Fannie Mae upon request. Our bylaws also are available in the ~~proxy statement and to serve if elected, as described in Section 4.19~~Corporate Governance section of ~~the bylaws.~~
our website atwww.fanniemae.com.
~~Cost of Annual Meeting and Proxy Solicitation~~COST OF ANNUAL MEETING AND PROXY SOLICITATION
~~Fannie Mae pays~~
We pay the cost of the annual meeting and the cost of soliciting proxies. In addition to soliciting proxies by mail, our officers and regular employees ~~of Fannie Mae~~ may solicit proxies by personal interview, telephone, facsimile, and similar means. ~~No officer~~None of our officers or ~~employee of Fannie Mae~~employees will ~~be specially compensated~~receive any additional compensation for these activities. ~~Fannie Mae~~We also ~~intends~~intend to request that brokers, banks, nominees and other ~~nominees~~fiduciaries solicit proxies from their principals and will ~~pay the brokers, banks, andother nominees certain~~reimburse them for postage and other reasonable expenses they incur for ~~such~~these activities. ~~Fannie Mae has~~We have retained Morrow & Co. Inc., a proxy ~~soliciting~~solicitation firm, to assist in ~~the solicitation of~~soliciting proxies, for an estimated fee of ~~$16,000~~$15,000, plus reimbursement of certain out-of-pocket expenses.
This amount excludes costs normally expended for a solicitation for an uncontested election of directors, and salaries and wages of regular employees and officers.
~~Form~~FORM 10-K
~~If you would like to have a copy of Fannie Mae’s most recent~~
Our Annual Report ~~on Form 10-K, which contains~~to Shareholders for the fiscal year ended December 31, 2006, including consolidated financial ~~and other~~statements, is being mailed to shareholders entitled to vote at the annual meeting with this Proxy Statement. We also have posted our Annual Report to Shareholders to our website atwww.fanniemae.com. The Annual Report does not constitute a part of the proxy solicitation material. The Annual Report tells you how to get additional information about Fannie Mae, Fannie Mae will send you one without charge. Write or call the Office of Investor Relations, Fannie Mae, 3900 Wisconsin Avenue NW, Washington, DC 20016 (telephone: 202-752-7115). Copies also are available on our Web site at www.fanniemae.com.us.

77
~~Section 16(a) Beneficial Ownership Reporting~~
Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires directors and certain officers of reporting companies, and persons who own more than ten percent of a registered class of such company’s equity securities, to file reports of ownership and changes in ownership with the SEC and any exchange on which such company’s securities trade, and to furnish the company with copies of the forms. As a federally chartered corporation, Fannie Mae’s directors and officers were exempt from these requirements during 2002. On March 31, 2003, however, upon the effectiveness of Fannie Mae’s registration of its common stock with the SEC under the Exchange Act, Fannie Mae’s directors and applicable officers began filing Section 16(a) reports. These reports are accessible through our Web site at www.fanniemae.com.
~~By Order of the Board of Directors~~
~~Thomas E. Donilon~~
~~Secretary~~
~~Dated: April 14, 2003~~
~~Washington, DC~~
37
APPENDIX ~~A:    AUDIT COMMITTEE CHARTER~~A
1.    ~~Members~~.    The Committee shall consist of at least three directors, including a chair and such other directors as the Board shall appoint upon recommendation by the Nominating and Corporate Governance Committee, each of whom shall meet the independence and qualification requirements of the New York Stock Exchange, as determined by the Board.
~~2.    Purpose, duties and responsibilities.~~
~~The purpose of the Committee shall be to:~~
oversee (a) the accounting, reporting, and financial practices of the corporation and its subsidiaries, including the integrity of the corporation’s financial statements, (b) the creation and administration of financial controls and the corporation’s compliance with legal and regulatory requirements, (c) the outside auditor’s qualifications and independence, and (d) the performance of the corporation’s internal audit function and the corporation’s outside auditor; and
~~prepare the report required by the rules of the Securities and Exchange Commission to be included in the corporation’s annual proxy statement.~~
~~Among its duties and responsibilities, the Committee shall:~~
~~Oversight of External Auditor Relationship~~
~~(i)~~ Be directly responsible for the appointment, compensation, retention and oversight of the work of the outside auditor. In this regard, the Committee shall have the sole authority to appoint and retain, subject to ratification by the corporation’s shareholders, and terminate when appropriate, the corporation’s outside auditor, and review and assess the activities of the outside auditor. The outside auditor shall report directly to the Committee. The corporation shall provide appropriate funding, as determined by the Committee, for payment of compensation to the external auditor.
~~(ii)~~ At least annually, consider the independence of the outside auditor, including whether the outside auditor’s performance of permissible non-audit services is compatible with the auditor’s independence, and obtain from the outside auditor a written statement delineating all relationships between the outside auditor and the corporation and any other relationships that may adversely affect the independence of the auditor. Discuss with the outside auditor any disclosed relationships or services that may impact the objectivity and independence of the outside auditor.
~~(iii)~~ At least annually, obtain and review a report by the outside auditor describing: the outside auditor’s internal quality-control procedures; and any material issues raised by the most recent internal quality-control review, or peer review, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues.
~~(iv)~~ Review and evaluate the lead partner of the outside auditor team. Oversee the rotation of audit engagement team partners as required by law and rules and regulations of the Securities and Exchange Commission.
~~(v)~~ Approve in advance all audit engagement fees and terms for all audit services to be provided by the outside auditor. (By approving the audit engagement, an audit service within the scope of the engagement shall be deemed to have been approved in advance.) Discuss with the outside auditor the planning and staffing of the audit.
~~(vi)~~
~~Establish policies and procedures for the engagement of the outside auditor to provide permissible non-audit services, which shall include approval in advance by the Committee of~~
~~A-1~~
all permissible non-audit services to be provided by the outside auditor. The Committee may delegate authority to one or more members to grant pre-approvals of audit and permitted non- audit services, provided that decisions to grant pre-approvals shall be presented to the full Committee at its next scheduled meeting.
~~(vii)~~ ~~Establish policies for the hiring of employees and former employees of the outside auditor.~~
~~Financial Statement and Disclosure Matters~~
~~(viii)~~ Review and discuss with the outside auditor: (a) the scope of the audit, the results of the annual audit examination by the auditor, any difficulties the auditor encountered in the course of its audit work, any restrictions on the scope of the outside auditor’s activities or on access to requested information, any significant disagreements with management, and other matters required to be discussed under Statement on Auditing Standards No. 61 relating to the conduct of the audit; (b) the scope and resources of the corporation’s internal audit function; and (c) any reports of the outside auditor with respect to interim periods.
~~(ix)~~ Review and discuss with management and the outside auditor the annual audited and quarterly unaudited financial statements of the corporation, including: (a) an analysis of the outside auditor’s judgment as to the quality of the corporation’s accounting principles; (b) significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including any significant changes in the corporation’s selection or application of accounting principles and financial statement presentations; and (c) the corporation’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
~~(x)~~ Receive, review and discuss reports from the outside auditors on: (a) all critical accounting policies and practices to be used; (b) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the outside auditor; and (c) other material written communications between the outside auditor and management, such as any management letter or schedule of unadjusted differences.
~~(xi)~~ ~~Recommend to the Board, based on the review and discussion described in paragraphs (viii) – (x) above, whether the audited financial statements should be included in the annual report on Form 10-K.~~
~~(xii)~~ Review earnings releases, and review and discuss generally the types of information to be disclosed and the type of presentations to be made, including the use of “non-GAAP financial measures,” in the corporation’s earnings press releases, as well as financial information and earnings guidance provided to analysts and ratings agencies. The chair of the Committee may represent the entire Committee for purposes of the review of earnings releases and such other information.
~~(xiii)~~ Review and discuss with management, the head of the internal audit department and the outside auditor the adequacy and effectiveness of: (a) the corporation’s internal controls, including any significant deficiencies in internal controls, significant changes in internal controls reported to the Committee by the outside auditor or management, and any special steps adopted in light of material control deficiencies; and (b) the corporation’s disclosure controls and procedures and management reports thereon.
~~(xiv)~~ ~~Review and discuss with the CEO and CFO the basis for the certifications to be provided in the corporation’s Form 10-K and Form 10-Qs.~~
~~(xv)~~ Review and discuss with management and the outside auditor any correspondence with regulators or governmental agencies which raises material issues regarding Fannie Mae’s financial statements, financial disclosures or accounting policies.
~~A-2~~
~~(xvi)~~ ~~Review and discuss with management the corporation’s major risk exposures, management’s policies on risk management and risk assessment, and the corporation’s compliance with those policies.~~
~~Oversight of Internal Audit Function~~
~~(xvii)~~ Oversee and discuss the internal auditing activities and performance, including the appointment, and replacement when appropriate, of the head of the corporation’s internal audit department, the internal audit charter, and the budget and staffing for the internal audit department. Discuss with the head of the corporation’s internal audit department the scope and performance of the internal audit function, including a review of the annual internal audit plan, and whether there are any restrictions or limitations on the department.
~~(xviii)~~ ~~Obtain periodic reports from the head of the internal audit department regarding internal audit findings and the corporation’s progress in remedying any material control deficiencies.~~
~~Compliance Oversight Responsibilities~~
~~(xix)~~ ~~Review and discuss the status of compliance with accounting, legal, regulatory, tax, and other developments of major significance to the corporation.~~
~~(xx)~~ Review and discuss Fannie Mae’s Code of Business Conduct (“Code”) and the activities of management’s Business Conduct Committee established under the Code, including the monitoring of compliance with the Code and any significant violations of the Code.
~~(xxi)~~ Establish procedures for the receipt, retention and treatment of complaints received by the corporation regarding accounting, internal accounting controls or auditing matters, including procedures for confidential, anonymous submission of concerns by employees regarding accounting or auditing matters.
~~(xxii)~~ ~~Meet with representatives from the Office of Federal Housing Enterprise Oversight as required.~~
~~Other Duties~~
~~(xxiii)~~ ~~Annually evaluate the performance of the Committee, and reassess the adequacy of the Committee charter and submit any recommended changes to the Board for approval.~~
~~(xxiv)~~ Make regular reports to the Board on the Committee’s activities. These reports generally shall occur at the next Board meeting following each Committee meeting or at such other times as the Committee deems appropriate.
~~(xxv)~~ ~~Perform such other duties as the Board or the Committee considers appropriate.~~
3.    ~~Outside advisors.~~    The Committee shall have the authority to retain such outside counsel, accountants, experts and other advisors as it deems appropriate to assist the Committee in the performance of its functions. The corporation shall provide for appropriate funding, as determined by the Committee, for payment of compensation to any advisor retained by the Committee.
4.    ~~Meetings.~~    The Committee shall meet as often as may be deemed necessary or appropriate in its judgment, but not less than quarterly, either in person or telephonically, and at such times and places as the Committee shall determine. The Committee shall meet separately in executive session, periodically, with each of management, the head of the internal audit department, and the outside auditor.
5.    ~~Subcommittees.~~    ~~In its discretion, the Committee may establish subcommittees consisting of one or more members, who shall report on their activities at the next meeting of the Committee.~~
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~~APPENDIX B:    CORPORATE GOVERNANCE GUIDELINES~~
~~The Role of the Board and Management~~
The Board of Directors oversees the management of the corporation and its business. The Fannie Mae Board of Directors represents the interests of the company’s stockholders, the owners of the corporation, in optimizing long-term value by providing the company guidance and strategic oversight on the stockholders’ behalf. The paramount duty of the Board of Directors is to select a well-qualified and ethical Chief Executive Officer (CEO) and to diligently oversee the CEO and other senior management in the operation of the corporation. In addition, the Board performs the following specific functions, among others:
~~Selects, compensates and evaluates the chief executive officer and plans for management succession~~
~~Oversees election, retention, and compensation of qualified senior executives~~
~~Reviews and approves the corporation’s strategic plan and the annual operating plans, budget, and corporate performance~~
~~Advises management on significant issues facing the corporation~~
~~Reviews and approves significant corporate actions~~
~~Oversees the financial reporting process, communications with external stockholders, and the corporation’s legal and regulatory compliance program~~
~~Nominates directors and oversees effective corporate governance~~
It is the responsibility of management, in the exercise of their fiduciary duty to the company and its stockholders, to run the corporation’s business in an effective and ethical manner. The CEO is the leader of management and vested with the authority to make final decisions on behalf of management.
~~The Corporate Governance Guidelines~~
These Corporate Governance Guidelines have been developed by Fannie Mae’s Nominating and Corporate Governance Committee and formally adopted by the Board of Directors. These guidelines (along with the charters of the Board Committees as well as the company’s Bylaws, its Employee Code of Business Conduct and Directors’ Code of Conduct and Ethics and Conflict of Interests Policy) are published on Fannie Mae’s corporate website, www.fanniemae.com and are available in print to any stockholder who requests them.
~~Board Composition, Size and Membership Criteria~~
The Fannie Mae Board consists of eighteen persons, five of whom are appointed annually by the President of the United States, and the remainder of whom are elected annually by the stockholders at the company’s Annual Meeting of Stockholders. It is the policy of the Board that a substantial majority of the Fannie Mae directors will be independent, in accordance with the standards adopted by the Board. Currently, more than two-thirds of the Board consists of independent directors.
It is the responsibility of the Nominating and Corporate Governance Committee to identify and evaluate prospective stockholder-elected candidates for the Board. The Committee will seek out Board members who possess the highest personal values, judgment and integrity; an understanding of the regulatory and policy environment in which the corporation does its business; and diverse experience in the key business, financial and other challenges that face a major American enterprise. Stockholders may submit written recommendations for nominees directly to the Chairman of the Nominating and Corporate Governance Committee of the Board in care of the Office of the Secretary of the corporation.
~~B-1~~
~~The Chairman of the Nominating and Corporate Governance Committee formally invites new director candidates to stand for election to the Board.~~
In considering stockholder-elected members of the Board for renomination, the Nominating and Corporate Governance Committee takes into consideration: (i) a director’s contribution to the effective functioning of the corporation; (ii) any change in the director’s principal area of responsibility with his or her company or in his or her employment; (iii) the director’s retirement from his or her principal area of responsibility with his or her company; (iv) whether the director continues to bring relevant experience to the Board; (v) whether the director has the ability to attend meetings and fully participate in the activities of the Board; and (vi) whether the director has developed any relationships with Fannie Mae or another organization, or other circumstances have arisen, that might make it inappropriate for the director to continue serving on the Board; and (vii) the director’s age and length of service on the Board.
Directors are required to inform the Nominating and Corporate Governance Committee of any changes in employment responsibilities in order for the committee to determine whether it is appropriate to renominate the Board member for continuing Board service.
Generally, a director will not be renominated after having served for ten years, although the Nominating and Corporate Governance Committee may for good reason propose the renomination of such a director. No director will be proposed for renomination after 15 years of Board service. This policy is applied on a gradual basis so that turnover of a significant number of seats on the Board in any one year is limited.
A Board member generally must retire at the Annual Meeting of Shareholders following his or her 70th birthday, except that a director first nominated after age 67 may be renominated at up to the next five Annual Meetings.
~~Unless otherwise requested by the Board, the Chairman and CEO will cease to be a member of the Board of Directors at the termination of his or her employment as CEO.~~
Management directors must obtain approval from the Nominating and Corporate Governance Committee before accepting a seat on the Board of another for-profit organization. Non-management directors must notify the Nominating and Corporate Governance Committee before accepting a seat on the Board of another for-profit organization, and the Committee will determine, in its judgment, whether such service will interfere with the director’s service on the Fannie Mae Board. Audit Committee members may not serve on the audit committees of more than three public companies.
~~Director Independence~~
The Board, through its Nominating and Corporate Governance Committee, on an annual basis, reviews the independence of all directors, affirmatively makes a determination as to the independence of each director, and discloses those determinations. Under the definition of “independence” adopted by the Board, an “independent director” must be determined to have no material relationship with Fannie Mae, either directly or through an organization that has a material relationship with Fannie Mae. A relationship is “material” if, in the judgment of the Board, it would interfere with the director’s independent judgment. In addition, an Audit Committee member also must be “independent” within the meaning of the New York Stock Exchange’s listing requirements for audit committees. To assist it in determining whether a director is independent, the Board has adopted the guidelines set forth below:
~~A director will not be considered independent if, within the preceding five years:~~
i. ~~the director was employed by Fannie Mae; or~~
~~ii.~~ ~~an immediate family member of the director was employed by Fannie Mae as an officer; or~~
~~B-2~~
~~iii.~~ ~~the director was affiliated with or employed by Fannie Mae’s outside auditor; or~~
~~iv.~~ ~~an immediate family member of the director was affiliated with or employed by Fannie Mae’s outside auditor as a partner, principal or manager; or~~
v. ~~the director was employed by a company at a time when a Fannie Mae executive officer sat on that company’s compensation committee; or~~
~~vi.~~ ~~an immediate family member of the director was employed as an officer by a company at a time when a Fannie Mae executive officer sat on that company’s compensation committee.~~
~~A director will not be considered independent if the director receives any compensation from Fannie Mae, directly or indirectly, other than fees for service as a director.~~
A director will not be considered independent if the director is an executive officer, controlling shareholder, or partner of a corporation or other business entity that does business with Fannie Mae and to which Fannie Mae makes, or from which Fannie Mae receives, payments in excess of 2 percent of either Fannie Mae’s or the entity’s consolidated gross annual revenues.
A director will not be considered independent if the director or the director’s spouse is an executive officer, employee, director, or trustee of a non profit organization to which Fannie Mae or the Fannie Mae Foundation makes payments in any year in excess of 5 percent of either Fannie Mae’s or the organization’s consolidated gross annual revenues, or $100,000, whichever is less. (Amounts that the Fannie Mae Foundation contributes under Fannie Mae’s matching gifts program are not included in the payments calculated for purposes of this standard). The Nominating and Corporate Governance Committee also will administer standards concerning any charitable contribution to organizations otherwise associated with a director or any spouse of a director. The corporation shall be guided by the interests of the company and its stockholders in determining whether and the extent to which it makes charitable contributions.
Where the guidelines above do not address a particular relationship, the determination of whether the relationship is material, and whether a director is independent, will be made by directors who satisfy the independence guidelines set forth above, based upon the recommendation of the Nominating and Corporate Governance Committee.
The Board may determine that, in its judgment, a director that does not meet these guidelines nonetheless, under all the facts and circumstances, does not have a relationship with Fannie Mae that would interfere with the director’s independent judgment. The Board will disclose the basis for any such determination in the company’s next proxy statement.
~~Board Meetings~~
The Fannie Mae Board meets at least seven times per year. In addition to regularly scheduled meetings, unscheduled Board meetings may be called with adequate notice, if needed. Directors are expected to attend in person all regularly scheduled Board meetings. The presence of a majority of the incumbent directors at the time of any meeting constitutes a quorum for the transaction of business, and the act of a majority of such directors present at a meeting at which a quorum is present constitutes the act of the Board. Directors may not vote or participate by proxy. The Board may act by unanimous written consent of all incumbent directors. The Chairman and CEO, in consultation with the Chairs of the Board’s committees, determines the agenda for Board meetings. Directors will be asked regularly by the Chairman of the Nominating and Corporate Governance Committee to evaluate the information being provided to the Board and to submit suggestions for Board agenda items.
Fannie Mae’s non-management directors meet in executive session on a regular basis. Time for an executive session will be placed on the agenda for every regular Board meeting. The Chairman of the Nominating and Corporate Governance Committee will serve as the presiding director of these sessions.
~~B-3~~
~~Board dinners are scheduled quarterly each year to give Board members an opportunity to informally discuss Fannie Mae issues.~~
~~Board Materials~~
Directors are expected to review and devote appropriate time to studying Board materials. Materials for meetings are generally delivered five to seven days in advance of each Board and committee meeting. In certain cases, due to the sensitive nature of a matter, presentations are provided only at the Board or committee meeting.
~~Committees~~
The current standing Board committees are the Executive, Assets and Liabilities Policy, Audit, Compensation, Nominating and Corporate Governance, and Technology Committees. The bylaws give the Board authority to create additional committees. Each Committee has a written charter setting forth the responsibilities, duties and authorities of the Committee. The full Board reviews and approves Committee charters.
The Audit, Compensation, and Nominating and Corporate Governance Committees consist solely of independent directors. Committee assignments, including the designation of Committee Chairs, are made annually by Board resolution, based on recommendations from the Nominating and Corporate Governance Committee. Assignments are made based on a combination of factors including each individual Board member’s expertise and the needs of the corporation.
Each committee meets periodically for an appropriate length of time based on the specific meeting agenda. Generally, the regular annual committee schedule is as follows: Executive, as needed; Assets and Liabilities Policy, four times a year; Audit, at least four times a year; Compensation, at least three times a year; Nominating and Corporate Governance, at least four times a year; and Technology, twice a year. Additional committee meetings are scheduled as needed. Committee agendas are developed by the Committee Chair in consultation with the appropriate members of management and with the input of other directors. Directors are expected to attend in person all regularly scheduled committee meetings. Participation by telephone is permitted in exigent circumstances. Each Committee Chair makes a report on committee matters to the Board of Directors at the next scheduled Board meeting.
The Audit Committee periodically meets separately in executive session with each of management, the corporation’s internal auditor, and the outside auditor. In addition, the Audit Committee, or a designated representative of the Committee, will meet prior to the release and filing of the corporation’s quarterly financial reports, to review such materials. The Chairman of the Audit Committee will also meet twice a year with the company’s internal corporate disclosure committee. The corporation’s Senior Vice President for Operations Risk, who is responsible for Fannie Mae’s internal audit function, reports directly to the Audit Committee.
~~Director Access to Management and Outside Advisors~~
The corporation’s senior management team attends Board meetings on a regular basis, both to make special presentations and as a discussion resource, and is available directly to Board members outside of meetings.
The Board and its committees (consistent with the provisions of their respective charters) have the authority to retain such outside counsel, experts, and other advisors as they determine necessary to assist them in the performance of their functions.
~~Communications with the Board~~
~~The Chairman of the Nominating and Corporate Governance Committee is responsible for convening and presiding over regular executive sessions of the non-management directors. To facilitate the ability~~
~~B-4~~
of interested parties to communicate their concerns or questions, Fannie Mae will publish on its website and in its proxy statement a mailing address and an e-mail address for communications directly with the Chairman of the Nominating and Corporate Governance Committee or the non-management directors as a group. In addition, Fannie Mae will publish on its website and in its proxy statement a procedure for communicating with the Audit Committee regarding accounting, internal accounting controls or auditing matters.
~~Director Compensation~~
Director compensation is a mix of cash, options, and restricted stock. Vesting over a period of years, director equity compensation is designed to align director interests with stockholders’ long-term value. Non-management directors’ total compensation is targeted to be consistent with the compensation philosophy applicable to senior management. The Nominating and Corporate Governance Committee is responsible for recommending compensation for non-management directors on the Board and reviews non-management director compensation once a year. Management directors do not receive additional compensation for Board service.
~~Director Orientation and Continuing Education~~
New directors participate in an orientation program to assist in familiarizing them with Fannie Mae’s business and their responsibilities as directors. The Secretary of the corporation is responsible for providing the orientation program to new directors. The orientation program addresses at a minimum Fannie Mae’s corporate powers and limitations; an overview of Fannie Mae’s business; the housing finance industry; key corporate performance indicators; strategic goals, risks, and the Fannie Mae workforce; and technological change in the industry. Orientation sessions are also provided to new members of Board committees. Fannie Mae supports directors’ periodic participation in continuing education programs to assist them in performing their Board responsibilities. In addition, the corporation conducts in-house director education programs on relevant topics.
~~Board Performance Evaluation~~
The Board’s performance can have an important effect on the overall, long-term business performance of the corporation. The Board conducts an annual self-evaluation to assess its effectiveness, on the basis of criteria developed by the Nominating and Corporate Governance Committee and approved by the Board. Each of the Board’s committees conducts an annual self-evaluation. The ability of individual directors to contribute to the Board is assessed in connection with the renomination process.
~~Management Evaluation and Succession~~
The Compensation Committee conducts an annual review of the performance of the corporation and the Chairman of the Board and CEO and senior management. The Chairman of the Board and CEO and other management directors are not present when the Committee meets to evaluate their performance. The Committee Chair reports on that evaluation to the non-management directors of the Board. The annual performance review is based, in large part, upon ratings and commentary provided on an annual CEO Evaluation Form distributed to the entire Board. The CEO rating factors include: strategic thinking; providing vision and direction; accelerating change; intellectual honesty; integrity; motivating and energizing people; teamwork and partnering; influencing delivering results; valuing all people; and developing management. The review includes the Compensation Committee’s own assessment and reflects discussions with other Board members.
On an annual basis, the Compensation Committee and the non-management members of the Board review management succession planning with the Chairman of the Board and CEO. The Chairman and CEO meets in executive session with the nonmanagement Board on at least an annual basis to discuss
~~B-5~~
succession planning for the CEO and the company’s key executives. During the Chairman of the Board’s absence or inability to act, or during the vacancy of the office, the Vice Chairman and Chief Operating Officer shall perform the duties and exercise the authority of the Chairman, until a temporary or permanent successor to the Chairman and CEO is appointed by the Board.
~~Codes of Conduct~~
Fannie Mae’s Board has adopted a Code of Business Conduct applicable to all Fannie Mae employees, which is posted on the company’s website. Each employee must annually certify compliance with the Code. The Audit Committee oversees implementation and compliance of the Code.
The Board has adopted a Code of Business Conduct and Ethics and Conflict of Interests Policy for Members of the Board of Directors, which is posted on the company’s website. Each director must annually certify compliance with the Directors’ Code. The Nominating and Corporate Governance Committee oversees implementation and compliance with the Directors’ Code.
~~Implementation of the Guidelines~~
~~If the Board ascertains at any time that any of the Guidelines set forth herein are not in full force and effect, the Board shall take such action as it deems necessary to assure full compliance.~~
~~B-6~~
~~APPENDIX C:~~    FANNIE MAE
STOCK COMPENSATION PLAN OF 2003
as proposed to be amended
~~I.    The Plan~~
I.   The Plan
1.1 Purpose.  The purpose of the Fannie Mae Stock Compensation Plan of 2003 is to promote the success of Fannie Mae by providing stock compensation to employees and directors that is comparable to that provided by similar companies; to attract, motivate, retain and reward employees of Fannie Mae; to provide incentives for high levels of individual performance and improved financial performance of Fannie Mae; to attract, motivate and retain experienced and knowledgeable independent directors; and to promote a close identity of interests between directors, officers, employees and shareholders.
1.2 Definitions.  The following terms shall have the meanings set forth below:
~~The following terms shall have the meanings set forth below:~~
(1) “Award”shall mean an award of any Option, Stock Appreciation Right, Restricted Stock, Performance Share Award, Stock Bonus or any other award authorized under Section 1.6, or any combination thereof, whether alternative or cumulative, or an award of any Options or Restricted Stock authorized under Articles VI and VII.
(2) “Award Date”shall mean the date upon which the Committee takes the action granting an Award or a later date designated by the Committee as the Award Date at the time it grants the Award, or, in the case of Awards under Sections 6.2 or 7.2, the applicable dates set forth therein.
(3) “Award Document”shall mean any writing (including in electronic or other form approved by the Committee), which may be an agreement, setting forth the terms of an Award that has been granted by the Committee.
(4) “Award Period”shall mean the period beginning on an Award Date and ending on the expiration date of such Award.
(5) “Beneficiary”shall mean the person or persons designated by a Participant or Permitted Transferee in writing to the senior-ranking officer in the Human Resources department of Fannie Mae to receive the benefits specified in an Award Document and under the Plan in the event of the death of the Participant or Permitted Transferee.
(6) “Benefit Plans Committee”shall mean the Benefit Plans Committee established by the Board, consisting of employees of Fannie Mae.
(7) “Board”shall mean the Board of Directors of Fannie Mae.
(8) “Cause”shall mean significant harm to Fannie Mae in connection with a Participant’s employment by Fannie Mae, by the Participant’s engaging in dishonest or fraudulent actions or willful misconduct or performing the Participant’s duties in a negligent manner, as determined by the Committee for a member of the Board who is an officer or employee of Fannie Mae and for the General Counsel of Fannie Mae, and by the General Counsel of Fannie Mae for all other employees; provided that no act or failure to act will be considered “willful” unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief that the act or failure to act was in the interest of Fannie Mae.
(9) “Change in Control Event”shall mean a change in the composition of a majority of the Board elected by shareholders within 12 months after any “person” (as such term is used in Sections 3(a)(9), 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934) is or becomes the beneficial owner, directly or indirectly, of securities of Fannie Mae representing more than

A-1
25 percent of the combined voting power of the then-outstanding securities of Fannie Mae entitled to then vote generally in the election of directors of Fannie Mae.
~~C-1~~
(10) “Code”shall mean the Internal Revenue Code of 1986, as amended from time to time.
(11) “Committee”shall mean the Compensation Committee of the Board.
(12) “Common Stock”shall mean the common stock of Fannie Mae and, in the event such common stock is converted to another security or property pursuant to Section 8.2, such other security or property.
(13) “Director Term”shall mean the period starting immediately following the annual meeting of the shareholders at which directors are elected to serve on the Board and ending at the close of the next annual meeting at which directors are elected.
(14) “Early Retirement”means separation from service with Fannie Mae at or after the attainment of age 60 (but before attainment of age 65) with five years of service with Fannie Mae, or at an earlier age only if permitted by the Committee in its sole discretion. For purposes of this Section 1.2(14), a year of service shall be determined in accordance with the Federal National Mortgage Association Retirement Plan for Employees Not Covered Under Civil Service Retirement Law.
(15) “Eligible Employee”shall mean any employee of Fannie Mae.
(16) “ERISA”shall mean the Employee Retirement Income Security Act of 1974, as amended.
(17) “Fair Market Value”shall mean the per share value of Common Stock as determined by using the mean between the high and low selling prices of such Common Stock, on the date of determination, as reported on the NYSE. If such prices are not available ~~or if~~the Fair Market Value shall be the mean of (1) the mean between the high and low selling prices of the common stock, as reported on the NYSE, for the first trading day immediately preceding the date of determination and (2) the mean between the high and low selling prices of the common stock, as reported on the NYSE, for the first trading day immediately following the date of determination. If the Common Stock is no longer traded on the NYSE, or if for any other reason using the foregoing methods to determine Fair Market Value is not possible or logical under the circumstances, the Committee may determine the Fair Market Value, ~~shall be determined by the Committee,~~ in good faith, using any reasonable method.
(18) “Fannie Mae”shall mean Fannie Mae and its successors and, where the context requires, its Subsidiaries.
(19) “Immediate Family Member”shall mean, with respect to a Participant, (i) the Participant’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, half-sibling, stepsibling,mother-in-law,father-in-law,son-in-law,daughter-in-law,brother-in-law orsister-in-law (including adoptive relations where the adopted individual shall not have attained the age of 18 years prior to such adoption); (ii) the Participant’s Domestic Partner (as defined in Section 2.18 of the Federal National Mortgage Association Retirement Plan for Employees Not Covered Under Civil Service Retirement Law and determined pursuant to the guidelines and procedures established thereunder); (iii) any lineal ascendant or descendant of any individual described in (i) or (ii) above; (iv) any partnership, limited liability company, association, corporation or other entity all of whose beneficial interests (including without limitation all pecuniary interests, voting rights and investment power) are held by and for the benefit of the Participantand/or one or more individuals described in (i), (ii) or (iii) above; or (v) any trust for the sole benefit of the Participantand/or one or more individuals described in (i), (ii) or (iii) above.

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(20) “Incentive Stock Option”shall mean an Option that is designated as an incentive stock option within the meaning of Section 422 of the Code, or any successor provision, and that otherwise satisfies the requirements of that section.
(21) “NMD Participant”shall mean a Nonmanagement Director who has been granted an Award under Article VI or Article VII.
(22) “Nonmanagement Director”shall mean a member of the Board who is not an officer or employee of Fannie Mae.
(23) “Nonqualified Stock Option”shall mean an Option that is not an Incentive Stock ~~Option.~~Option
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(24) “NYSE”shall mean the New York Stock Exchange.
(25) “Option”shall mean an option to purchase shares of Common Stock pursuant to an Award.
(26) “Participant”shall mean a Nonmanagement Director who has been granted an Award under the Plan or an Eligible Employee who has been granted an Award under the Plan.
(27) “Performance Share Award”shall mean an Award granted under Section 5.1.
(28) “Permitted Transferee” shall mean (i) any Immediate Family Member with respect to the Participant, and (ii) in the case of an Eligible Employee, any organization described in Section 170(c) of the Code that is eligible to receive tax-deductible, charitable contributions or any intermediary designated to exercise an Option for the benefit of such organization.
(29) “Personal Representative”shall mean the person or persons who, upon the incompetence of a Participant or Permitted Transferee, shall have acquired, by legal proceeding or power of attorney, the power to exercise the rights under the Plan, and who shall have become the legal representative of the Participant or Permitted Transferee, or, in the event of the death of the Participant or the Permitted Transferee, the executor or administrator of the estate of the Participant or Permitted Transferee.
(30) “Plan”shall mean this Fannie Mae Stock Compensation Plan of 2003.
(31) “Plan Termination Date”shall mean the tenth anniversary of the date of the meeting at which shareholders of Fannie Mae approve the Plan.
(32) “QDRO”shall mean a qualified domestic relations order as defined in Section 414(p) of the Code or Section 206(d)(3) of ERISA (to the same extent as if this Plan were subject thereto) and the applicable rules thereunder.
(33) “Restricted Stock”shall mean shares or bookkeeping units of Common Stock awarded to a Participant subject to payment of the consideration, if any, and the conditions on vesting and transfer and other restrictions as are established under the Plan, for so long as such shares or units remain nonvested under the terms of the applicable Award Document.
(34) “Retirement”shall mean, in the case of an Eligible Employee, separation from service with Fannie Mae under conditions entitling such Eligible Employee to an immediate annuity under the Federal National Mortgage Association Retirement Plan for Employees Not Covered Under Civil Service Retirement Law or under the Civil Service retirement law, whichever is applicable to such Eligible Employee, at or after the attainment of age 65.
(35) “Stand-Alone SAR”shall mean a Stock Appreciation Right granted independently of any other Award.
(36) “Stock Appreciation Right”shall mean a right pursuant to an Award to receive a number of shares of Common Stock or an amount of cash, or a combination of shares of Common Stock and cash, the aggregate amount or value of which is determined by reference to a change in the Fair Market Value of the Common Stock.

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(37) “Stock Bonus”shall mean an Award of shares of Common Stock under Section 5.2.
(38) “STSP”shall mean the Fannie Mae Securities Transactions Supervision Program and the guidelines thereunder.
(39) “Subsidiary”shall mean an organization whose employees are identified by the Board as eligible to participate in benefit plans of Fannie Mae.
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(40) “Total Disability”shall mean complete and permanent inability by reason of illness or accident to perform the duties of the occupation at which the Participant was employed when the illness commenced or accident occurred, as determined by Fannie Mae’s independent medical consultant.
(41) “Without Consideration”shall mean, with respect to a transfer of an Option, that the transfer is being made purely as a gift or donation, with no promise or receipt of payment, goods, services or other thing of value in exchange for the Option; provided, however, if the terms of a transfer of Options to an otherwise Permitted Transferee require that, upon proper notice of exercise of such Options, (i) Fannie Mae may reduce the number of shares of Common Stock or sell such number of shares of Common Stock otherwise deliverable thereunder to the extent required to fund any additional withholding tax on behalf of the Eligible Employee necessitated by the exercise, delivering only the balance of the shares of Common Stock due upon exercise of the Option to the Permitted Transferee,and/or (ii) the Permitted Transferee sell the shares of Common Stock so received upon exercise of the Option, apply a portion of the net proceeds of the exercise to the payment of any additional taxes, fees or other costs or expenses incurred by the donor Eligible Employee in connection with or as a result of such transfer and then deliver (if an intermediary) or retain (if an organization described in Section 170(c) of the Code) the remaining net proceeds from such sales of shares of Common Stock, the transfer shall nevertheless continue to be Without Consideration for the purposes hereof. A distribution of an Option by an entity or trust described in Section 1.2(19)(iv) or (v) to an owner or beneficiary thereof shall be treated as a transfer Without Consideration.
1.3 Administration and Authorization; Power and ~~Procedure.~~Procedure
(a) The Committee.  The Plan shall be administered by, and all Awards to Eligible Employees shall be authorized by, the Committee, unless otherwise required by law or regulation. Action of the Committee with respect to the administration of the Plan shall be taken by majority vote or unanimous written consent of the respective members.
(b) Plan Awards; Interpretation; Powers.  Subject to the express provisions of the Plan, the Committee shall have the authority:
(i) to determine the Eligible Employees who will receive an Award;
(ii) to grant an Award to such Eligible Employees, to determine the amount of and the price at which shares of Common Stock will be offered or awarded, to determine the other specific terms and conditions of such Award consistent with the express limits of the Plan, to establish the installments (if any) in which such Award shall become exercisable or shall vest, and to establish the expiration date and the events of termination of such Award;
(iii) to construe and interpret the Plan and any Award Documents, to further define the terms used in the Plan, and to prescribe, amend and rescind rules and regulations relating to the administration of the Plan;
(iv) to cancel, modify or waive Fannie Mae’s rights with respect to, or modify, discontinue, suspend or terminate, an Award being granted or an outstanding Award granted to or held by an Eligible Employee, subject to any required consents under Section 8.5;
(v) as part of any Eligible Employee’s employment agreement approved by the Committee, to modify or change an Award;

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(vi) to accelerate the vesting of, extend the ability to exercise, or extend the term of an Award being granted or an outstanding Award; and
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(vii) to make all other determinations and take such other actions as contemplated by the Plan or as may be necessary or advisable for the administration of the Plan and the effectuation of its purposes.
Notwithstanding the foregoing, the provisions of Articles VI and VII (except Sections 6.7 and 7.5) relating to Nonmanagement Director Awards shall be automatic and, to the maximum extent possible, self-effectuating. Ministerial, non-discretionary actions with respect to implementation of the Plan shall be performed by individuals who are officers or employees of Fannie Mae at the direction of the senior ranking officer in the Human Resources department of Fannie Mae. The senior ranking officer in the Human Resources department of Fannie Mae may also direct that certain administrative functions shall be performed by service providers outside of Fannie Mae.
(c) Binding Determinations.  Any action taken by, and any inaction of, Fannie Mae, any Subsidiary, the Board, the Committee or the Benefit Plans Committee relating or pursuant to the Plan shall be within the absolute discretion of that entity or body and shall be conclusive and binding upon all persons. Subject only to compliance with the express provisions of the Plan, the Board, the Committee and the Benefit Plans Committee may act in their absolute discretion in matters within their authority related to this Plan.
(d) Reliance on Experts.  In making any determination or in taking or not taking any action under the Plan, the Board, the Committee and the Benefit Plans Committee may obtain and may rely upon the advice of experts, including professional advisors to Fannie Mae.
(e) Delegation.  The Committee may delegate, subject to such terms and conditions as it may impose, some or all of its authority under the Plan to one or more members of the Board or, for Awards to Eligible Employees below the rank of Senior Vice President, to the senior-ranking officer in the Human Resources department. In addition, the Committee may delegate ministerial, non-discretionary functions to individuals who are officers, employees, contractors or vendors of Fannie Mae.
(f) No Liability.  No member of the Board, the Committee or the Benefit Plans Committee, or director, officer or employee of Fannie Mae or any Subsidiary shall be liable, responsible or accountable in damages or otherwise for any determination made or other action taken or any failure to act by such person in connection with the administration of the Plan, so long as such person is not determined by a final adjudication to be guilty of willful misconduct with respect to such determination, action or failure to act.
(g) Indemnification.  To the extent permitted by law, each of the members of the Board, the Committee and the Benefit Plans Committee and each of the directors, officers and employees of Fannie Mae and any Subsidiary shall be held harmless and be indemnified by Fannie Mae for any liability, loss (including amounts paid in settlement), damages or expenses (including reasonable attorneys’ fees) suffered by virtue of any determinations, acts or failures to act, or alleged acts or failures to act, in connection with the administration of the Plan so long as such person is not determined by a final adjudication to be guilty of willful misconduct with respect to such determination, action or failure to act.
1.4 Participation.  Awards may be granted by the Committee to Eligible Employees. An Eligible Employee who has been granted an Award may be granted, if otherwise eligible, additional Awards if the Committee shall so determine. Nonmanagement Directors shall be eligible to receive Awards granted automatically under Sections 6.2 and 7.2 and Awards granted under Sections 6.7 and 7.5.

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1.5 Shares Available for Awards.
(a) Common Stock.  Subject to the provisions of Section 8.2, the shares of Common Stock that may be delivered under this Plan shall be shares of Fannie Mae’s authorized but unissued Common Stock, shares of Common Stock held by Fannie Mae as treasury shares or shares of Common Stock purchased by Fannie Mae on the open market.
(b) Number of Shares.  ~~Subject to adjustments in accordance with Section 8.2, the~~The maximum number of shares of Common Stock that may be delivered under Awards granted to Eligible Employees and Nonmanagement Directors under the Plan shall not exceed 40,000,000 shares, and, subject to such overall maximum as applied to all Awards, the maximum number of shares of Common Stock that may be delivered under Specified Stock Awards (as hereinafter defined) shall not exceed, in the aggregate, 2,000,000 shares. For purposes of this Section 1.5(b),
  (i) a Specified Stock Award is (A) an Award granted pursuant to Article IV (“Restricted Stock Awards”) that is scheduled to vest in full before the third anniversary of the date of grant, or (B) an Award granted pursuant to Section 5.1 (“Grants of Performance Share Awards”) with a performance cycle that ends less than one year from the date of grant, or (C) an Award granted pursuant to Section 5.2 (“Grants of Stock Bonuses”) that is fully and immediately vested or that has vesting or performance features described in (A) or (B) above;
(ii) an Award that is described in both Article IV and Section 5.1 shall be considered a Specified Stock Award only if it is described in both of clauses (A) and (B) of Section 1.5(b)(i) above;
(iii) in applying Sections 1.5(b)(i), there shall be disregarded any Award or Plan provision that could result in accelerated vesting of or delivery of Common Stock under an Award; and
(iv) the 40,000,000 and 2,000,000 limitations shall be subject to adjustment in accordance with Section 8.2.”
(c) Calculation of Available Shares and Replenishment.  A good faith estimate of the number of shares of Common Stock subject to outstanding Awards that will be satisfied by delivery of shares of Common Stock, plus the number of shares of Common Stock referenced in calculating an Award paid in cash, shall be reserved from the number of shares of Common Stock available for Awards under the Plan. The aggregate number of shares of Common Stock delivered under the Plan plus the number of shares of Common Stock referenced with respect to Awards paid in cash shall reduce the number of shares of Common Stock remaining available for Awards under the Plan. If any Award shall expire or be canceled or terminated without having been exercised in full, or any Common Stock subject to a Restricted Stock Award or other Award shall not vest or be delivered, the unpurchased, nonvested or undelivered shares of Common Stock subject thereto or the shares of Common Stock referenced with respect thereto shall again be available under the Plan. In the case of Awards granted in combination such that the exercise of one results in a proportionate cancellation of the other, the number of shares of Common Stock reserved for issuance shall be the greater of the number that would be reserved if one or the other alone were outstanding. If Fannie Mae withholds shares of Common Stock pursuant to Section 8.4, the number of shares of Common Stock that would have been deliverable with respect to an Award but that are withheld pursuant to the provisions of Section 8.4 shall be treated as delivered, and the aggregate number of shares of Common Stock deliverable with respect to the applicable Award and under the Plan shall be reduced by the number of shares of Common Stock so withheld, and such withheld shares shall not be available for additional Awards.
1.6 Grant of Awards.  Subject to the express provisions of the Plan, the Committee shall determine the number of shares of Common Stock subject to each Award, the price (if any) to be paid for such shares or Award and other terms and conditions of the Award. Each Award to an Eligible Employee

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shall be evidenced by an Award Document, which, if required by the Committee, shall be signed by the Eligible Employee. Awards are not restricted to any specified form or structure and may include, without limitation, the types of Awards set forth in Articles II, III, IV and V or, without limitation, any other transfers of Common Stock or any options or warrants to acquire shares of Common Stock, or any similar right with value related to or derived from the value of Common Stock, as may be determined by the Committee. An Award may consist of one such benefit, or two or more of them in any combination or alternative.
1.7 Award Period.  Each Award and all executory rights or obligations under the related Award Document shall expire on such date (if any) as shall be determined by the Committee.
1.8 Limitations on Exercise and Vesting of Awards.
(a) Provisions for Exercise.  An Award shall be exercisable or shall vest as determined by the Committee.
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(b) Procedure.  Any exercisable Award shall be exercised when the person appointed by the Committee or the Committee’s designee receives written notice of exercise from the Participant or by any other method, including in electronic form, approved by the Committee, together with satisfactory arrangements for any required payment to be made in accordance with Sections 2.2 or 8.4 or the terms of the Award Document, as the case may be.
(c) Fractional Shares.  Fractional share interests shall be disregarded, but may be accumulated, or the Committee may determine that cash will be paid or transferred in lieu of any fractional share interests.
1.9 Transferability.
(a) General ~~Restrictions~~Restrictions..  Awards may be exercised only by the Participant; the Participant’s Personal Representative, if any; the Participant’s Beneficiary, if the Participant has died; the recipient of an Award by will or the laws of descent and distribution or, in the case of a Nonqualified Stock Option, pursuant to a QDRO; in the case of a Nonqualified Stock Option,a person who was a Permitted Transferee at the time the Option was transferred to such person; a Permitted Transferee’s Personal Representative, if any; or a Permitted Transferee’s Beneficiary, if the Permitted Transferee has died. Amounts payable or shares of Common Stock issuable under an Award shall be paid to (or registered in the name of) the person or persons specified by the person exercising the Award. Other than (i) by will or the laws of descent and distribution or, in the case of a Nonqualified Stock Option, pursuant to a QDRO or (ii) to a Permitted Transferee in the case of any Nonqualified Stock Option and (subject to (b), (c), (d), and (e) below), no right or benefit under this Plan or any Award, whether vested or not vested, shall be transferable by a Participant or Permitted Transferee or shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge (other than to Fannie Mae), and any such attempted action shall be void. Fannie Mae shall disregard any attempt at transfer, assignment or other alienation prohibited by the preceding sentences and shall pay or deliver such cash or shares of Common Stock only in accordance with the provisions of this Plan. The designation of a Beneficiary hereunder shall not constitute a transfer for these purposes.
(b) Tax ~~Withholding~~Withholding..  An Eligible Employee may not transfer Options (“Transferred Options”) to a Permitted Transferee, other than a charitable organization described in Section 1.2(28)(ii), unless the Eligible Employee agrees to retain, and not to exercise until the exercise of the Transferred Options, at least 50 percent of the exercisable Options held by the Eligible Employee with the same exercise price and expiration date as the Transferred Options. The condition set forth in the first sentence of this Section 1.9(b), however, may be waived at any time by (A) the Chairman of the Committee in the case of an Eligible Employee who is either a member of the Board or the senior-ranking officer in the Human Resources department of Fannie Mae, or (B) the senior-ranking officer in the Human Resources department of Fannie Mae in the case of any other Eligible Employee, and, as a condition of such waiver, the Chairman of the Committee or the

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senior-ranking officer in the Human Resources department of Fannie Mae, as the case may be, may specify other steps that the Eligible Employee must take to provide for the collection by Fannie Mae of all federal, state, local and other taxes required by law to be withheld upon the exercise of such Transferred Options.
(c)
Notice of Transfer.  A transfer of an Option to a Permitted Transferee shall not be effective unless, prior to making the transfer, the transferor (i) provides written notice of the transfer to (A) the Chairman of the Committee in the case of a transfer by a Participant who is either a member of the Board, the senior-ranking officer in the Human Resources department of Fannie Mae or the General Counsel of Fannie Mae (or a transfer by a Permitted Transferee of an Option originally granted to a member of the Board or to
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the senior-ranking officer in the Human Resources department of Fannie Mae), or (B) the senior-ranking officer in the Human Resources department of Fannie Mae in the case of any other transfer, and (ii) certifies in writing to the Chairman of the Committee or the senior-ranking officer in the Human Resources department of Fannie Mae, as the case may be, that the transfer will be Without Consideration.
(d) Approval of ~~Transfer~~Transfer..  A transfer of an Option to a charitable organization described in section 1.2(28)(ii) shall not be effective unless, after receiving the notice described in (c) above, the Chairman of the Committee or, after consultation with the General Counsel of Fannie Mae, the senior-ranking officer in the Human Resources department of Fannie Mae, as the case may be, either approves the proposed transfer in writing or does not disapprove the proposed transfer in writing within ten business days after receipt of such notice. The Chairman of the Committee or, after consultation with the General Counsel of Fannie Mae, the senior-ranking officer in the Human Resources department of Fannie Mae, as the case may be, may disapprove a proposed transfer if he or she determines, in his or her good faith judgment, that (i) the proposed Permitted Transferee has philosophies, purposes, policies, objectives, goals or practices inconsistent with those of Fannie Mae or (ii) the Participant has not taken such steps as may be necessary or appropriate to provide for the collection by Fannie Mae of all federal, state, local and other taxes required by law to be withheld upon exercise of the Option.
(e) Transfer of Nonvested ~~Options~~Options..  A nonvested Option may be transferred only to an Immediate Family Member described in section 1.2(28)(i) and only with the prior consent of (A) the Chairman of the Committee in the case of a Participant who is either a member of the Board, the senior-ranking officer in the Human Resources department of Fannie Mae or the General Counsel of Fannie Mae, or (B) after consultation with the General Counsel, the senior-ranking officer in the Human Resources department of Fannie Mae, after consultation with the General Counsel of Fannie Mae, in the case of any other Participant.
1.10 Section 83(b) Elections.  If a Participant shall file an election with the Internal Revenue Service under Section 83(b) of the Code to include the value of any Award in the Participant’s gross income while the Award remains subject to restrictions, the Participant shall promptly furnish Fannie Mae with a copy of such election.

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~~II.    Options~~
II.   Options
2.1 Grants.  One or more Options may be granted under this Article II to any Eligible Employee. Each Option granted may be either an Incentive Stock Option or a Nonqualified Stock Option.
2.2 Option Price.
(a) Pricing Limits.  The exercise price for shares of Common Stock covered by an Option shall be determined by the Committee at the time of the Award, but shall not be less than 100 percent of the Fair Market Value of the Common Stock on the Award Date. Notwithstanding any provision of the Plan, an Option may not be modified so as to reduce the exercise price of the Option.
(b)
Payment Provisions.  The exercise price for any shares of Common Stock purchased on exercise of an Option granted under this Article II shall be paid in full at the time of each exercise in one or a combination of the following methods: (i) by electronic funds transfer; (ii) by check payable to the order of Fannie Mae; (iii) by notice and third party payment; (iv) by the delivery of shares of Common Stock already owned by the Participant; or (v) by cashless exercise, or any other method, if permitted by law and authorized by the Committee, in its discretion, or specified in the applicable Award Document; provided, however, that the Committee, in its discretion, may limit the
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Participant’s ability to exercise an Option by delivering shares of Common Stock, including by imposing a requirement that the Participant satisfy a minimum holding period with respect to the shares so delivered. Shares of Common Stock used to satisfy the exercise price of an Option shall be valued at their Fair Market Value on the date of exercise.
2.3 Limitations on Incentive Stock Options.  There shall be imposed in any Award Document relating to Incentive Stock Options such terms and conditions as from time to time are required in order that the Option be an “incentive stock option” as that term is defined in Section 422 of the Code, or any successor provision.
2.4 Option Period.
(a) Award Period.  Each Option shall specify the Award Period for which the Option is granted and shall provide that the Option shall expire at the end of such Award Period. The Committee may extend the Award Period by amendment of an Option or in an Eligible Employee’s employment agreement approved by the Committee. Notwithstanding the foregoing, the Award Period with respect to an Incentive Stock Option, including all extensions, shall not exceed ten years.
(b) Effect of Termination of Employment.  Notwithstanding the provisions of Section 2.4(a), unless otherwise provided by the Committee or in an Eligible Employee’s employment agreement approved by the Committee, (i) for a Participant whose employment is terminated for any reason other than for Cause, Retirement, Early Retirement, Total Disability, death or having attained at least age 55 with at least five years of service and is not covered by Section 2.5(d), an Option shall expire on the earlier to occur of (A) the end of the Award Period or (B) the date three months following the Participant’s termination of employment, (ii) for a Participant whose employment is terminated and is covered by Section 2.5(d), an Option shall expire on the earlier to occur of (A) the end of the Award Period or (B) the date 12 months following the Participant’s termination of employment, (iii) for a Participant whose employment is terminated by reason of Retirement, Early Retirement, Total Disability, death or having attained at least age 55 with at least five years of service, an Option shall expire on the end of the Award Period and (iv) for a Participant whose employment is terminated by Fannie Mae for Cause, an Option shall expire upon the Participant’s termination.
(c) Death of Permitted Transferee.  Unless otherwise provided by the Committee, an Option held by a Permitted Transferee shall expire on the earlier of the date on which it would expire pursuant to Section 2.4(a) or (b) or the date 12 months following the Permitted Transferee’s death.

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2.5 Vesting; Forfeiture.
(a) Vesting ~~Generally~~Generally..  An Option shall be exercisable and vested upon such terms and conditions or pursuant to such schedule as the Committee shall determine. Except as otherwise provided in this Section 2.5 or unless otherwise specified by the Committee or in an Eligible Employee’s employment agreement approved by the Committee, an Option that is not vested upon a Participant’s termination of employment shall be forfeited. If a Participant’s employment is terminated by Fannie Mae for Cause, an Option that is not vested upon the Participant’s termination shall be forfeited.
(b) Change in ~~Control~~Control..  The Committee, in its discretion, may grant Options that by their terms shall become immediately exercisable and fully vested upon a Change in Control Event.
(c) Retirement, Early Retirement, Total Disability or ~~Death~~Death..  Unless otherwise specified by the Committee, an Option shall become immediately exercisable and fully vested upon the Participant’s Total Disability or the Participant’s termination of employment by reason of Retirement, Early Retirement or death.
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(d) Vesting Upon Termination with Separation ~~Agreements~~Agreements..  Notwithstanding the foregoing, (i) for a Participant who, prior to the termination of employment, executes a separation agreement with Fannie Mae pursuant to Fannie Mae’s Voluntary Separation Agreement program (“VSA”) or Voluntary Separation Option program (“VSO”), one-half of the portion of each Award that would have vested within 12 months of the date of such Participant’s termination of employment shall become immediately exercisable and fully vested upon the Participant’s termination; (ii) for a Participant who accepts Fannie Mae’s offer to terminate employment voluntarily and, prior to such termination, executes a separation agreement with Fannie Mae pursuant to an Elective Severance Window under the Federal National Mortgage Association Discretionary Severance Benefit Plan, the portion of each Award that would have vested within 12 months of the date of such Participant’s termination of employment by Fannie Mae, and one-half of the portion of each Award that would have vested within13-24 months of the date of termination, shall become immediately exercisable and fully vested upon termination; and (iii) for a Participant who, prior to the termination of his or her employment, executes a separation agreement with Fannie Mae pursuant to a Displacement Program under the Federal National Mortgage Association Discretionary Severance Benefit Plan or pursuant to the Fannie Mae Individual Severance Plan, the portion of each Award that would have vested within 12 months of the date of termination of employment shall become immediately exercisable and fully vested upon the Participant’s termination. If the Committee approves an employment agreement with an Eligible Employee that provides for vesting of certain Awards upon the employee’s termination, such Awards shall vest in accordance with the terms of such Eligible Employee’s employment agreement.
(e) “EPS Challenge Grants.”  Section 2.5(d) shall not apply to Options granted under the “EPS Challenge Grant” program established by the Board on January 18, 2000 or, if so provided by the Committee, to Options granted under other special incentive Option programs.
2.6 Option Amendments or Waiver of Restrictions.Subject to Sections 1.5 and 8.5 and the specific limitations on Awards contained in the Plan, the Committee from time to time may authorize, generally or in specific cases only, for the benefit of any Participant who is an Eligible Employee, any adjustment in the vesting schedule, the restrictions upon or the term of an Award granted under this Article II by amendment, waiver or other legally valid means. The amendment or other action may provide, among other changes, for a longer or shorter vesting or exercise period.
2.7 Gain Deferral.  Any Participant who is eligible to participate in the Fannie Mae Stock Option Gain Deferral Plan may elect to exercise a Nonqualified Stock Option under the provisions of such plan.

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III.  Stock Appreciation Rights
3.1 Grants.  In its discretion, the Committee may grant to any Eligible Employee Stock Appreciation Rights either concurrently with the grant of another Award or in respect of an outstanding Award, in whole or in part, or may grant to any Eligible Employee Stand-Alone SARs. Any Stock Appreciation Right granted in connection with an Incentive Stock Option shall contain such terms as may be required to comply with the provisions of Section 422 of the Code (or any successor provision). Each Stand-Alone SAR shall specify the Award Period for which the Stand-Alone SAR is granted and shall provide that the Stand-Alone SAR shall expire at the end of such Award Period. The Committee may extend the Award Period by amendment of a Stand-Alone SAR.
3.2 Exercise of Stock Appreciation Rights.
(a) Related Awards.  Unless the Award Document or the Committee otherwise provides, a Stock Appreciation Right related to another Award shall be exercisable at such time or times, and to the extent, that the related Award shall be exercisable.
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(b) Stand-Alone ~~SARs~~SARs..  Stand-Alone SARs shall be exercisable and vest upon such terms and conditions or pursuant to such schedule as the Committee shall determine at the time of the Award. Unless otherwise provided by the Committee or in an Eligible Employee’s employment agreement approved by the Committee, (i) in the case of a Participant’s termination of employment for Cause, Stand-Alone SARs shall expire and no longer be exercisable upon the Participant’s termination; (ii) in the case of a Participant’s Total Disability or a Participant’s termination of employment by reason of Retirement, Early Retirement or death or having attained at least age 55 with at least five years of service, Stand-Alone SARs shall become immediately exercisable and fully vested upon the Participant’s Total Disability or termination of employment, and Stand-Alone SARs shall expire and no longer be exercisable at the end of the Award Period; and (iii) in the case of a Participant’s termination of employment for any reason other than for Cause, Retirement, Early Retirement, Total Disability or death or having attained at least age 55 with at least five years of service, Stand-Alone SARs shall expire and no longer be exercisable on the earlier to occur of (A) the end of the Award Period or (B) the date three months following the Participant’s termination. The Committee, in its discretion, may grant Stand-Alone SARs that by their terms shall become immediately exercisable and fully vested upon a Change in Control Event.
3.3 Payment.
(a) Amount.  Unless the Committee otherwise provides, upon exercise of a Stock Appreciation Right and surrender of the appropriate exercisable portion of any related Award, the Participant shall be entitled to receive payment of an amount determined by multiplying
(i) the difference obtained by subtracting the exercise price per share of Common Stock under the related Award (if applicable) or the initial share value specified in the Award from the Fair Market Value on the date of exercise, by
(ii) the number of shares of Common Stock with respect to which the Participant is exercising the Stock Appreciation Right.
(b) Form of Payment.  The Committee, in its discretion, shall determine the form in which payment shall be made of the amount determined under paragraph (a) above, which may be solely in cash, solely in shares of Common Stock (valued at their Fair Market Value on the date of exercise of the Stock Appreciation Right), or partly in shares and partly in cash. If the Committee permits the Participant to elect to receive cash or shares of Common Stock (or a combination thereof) on such exercise, any such election shall be subject to such conditions as the Committee may impose.

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~~IV.    Restricted Stock Awards~~
IV.   Restricted Stock Awards
4.1 Grants.  The Committee, in its discretion, may grant one or more Restricted Stock Awards to any Eligible Employee. Each Restricted Stock Award Document shall specify the number of shares or units of Common Stock to be issued to the Participant, the date of such issuance, the consideration for the Restricted Stock, if any, to be paid by the Participant, the restrictions imposed on the Restricted Stock, and the conditions of release or lapse of such restrictions. Promptly after the lapse of restrictions on Restricted Stock, shares of Common Stock equal to the number of shares or units as to which the restrictions have lapsed (or such lesser number as may be permitted pursuant to Section 8.4) shall be delivered or credited to the Participant or other person entitled under the Plan to receive the shares. The Participant or such other person shall deliver to Fannie Mae such further assurance and documents as the Committee may require.
4.2 Restrictions.
(a) Pre-Vesting Restraints.  Except as provided in Section 1.9, shares or units of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise disposed of or encumbered, either voluntarily or involuntarily, until the restrictions have lapsed.
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(b) Dividend and Voting Rights.  Unless otherwise provided in the applicable Award Document, a Participant receiving shares (but not units) of Restricted Stock shall be entitled to cash dividend and voting rights for all shares of Common Stock issued even though they are not vested, provided that such rights shall terminate immediately as to any shares of Restricted Stock that cease to be eligible for vesting. If provided in the applicable Award Document, a Participant receiving units of Restricted Stock shall be entitled to cash dividend and voting rights for such units even though they are not vested, provided that such rights shall terminate immediately as to any units of Restricted Stock that cease to be eligible for vesting.
(c) Accelerated Vesting.  Unless otherwise provided by the Committee or in an Eligible Employee’s employment agreement approved by the Committee, the restrictions on Restricted Stock shall lapse upon the Participant’s Total Disability or termination of employment by reason of Retirement, Early Retirement, or death, and, if provided in the applicable Award Document, restrictions on Restricted Stock held for more than one year from the Award Date by Participants shall lapse upon a Change in Control Event.
(d) Vesting Upon Termination with Separation ~~Agreements~~Agreements..  Notwithstanding the foregoing, (i) for a Participant who, prior to the termination of employment, executes a separation agreement with Fannie Mae pursuant to Fannie Mae’s Voluntary Separation Agreement program (“VSA”) or Voluntary Separation Option program (“VSO”), one-half of the portion of each Award of Restricted Stock that would have vested within 12 months of the date of such Participant’s termination of employment shall become fully vested upon the Participant’s termination; (ii) for a Participant who accepts Fannie Mae’s offer to terminate employment voluntarily and, prior to such termination, executes a separation agreement with Fannie Mae pursuant to an Elective Severance Window under the Federal National Mortgage Association Discretionary Severance Benefit Plan, the portion of each Award of Restricted Stock that would have vested within 12 months of the date of such Participant’s termination of employment by Fannie Mae, and one-half of the portion of each Award of Restricted Stock that would have vested within13-24 months of the date of termination, shall become fully vested upon termination; and (iii) for a Participant who, prior to the termination of his or her employment, executes a separation agreement with Fannie Mae pursuant to a Displacement Program under the Federal National Mortgage Association Discretionary Severance Benefit Plan or pursuant to the Fannie Mae Individual Severance Plan, the portion of each Award of Restricted Stock that would have vested within 12 months of the date of termination of employment shall become fully vested upon the Participant’s termination. If the Committee approves an employment agreement with an Eligible Employee that provides for vesting of certain Awards upon the employee’s termination, such

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Awards shall vest in accordance with the terms of such Eligible Employee’s employment agreement.
(e) Forfeiture.  Unless otherwise provided by the Committee or in an Eligible Employee’s employment agreement approved by the Committee, Restricted Stock as to which the restrictions have not lapsed in accordance with the provisions of the Award or pursuant to Section 4.2(c) shall be forfeited upon a Participant’s termination of employment. Upon the occurrence of any forfeiture of Restricted Stock, the forfeited Restricted Stock shall be automatically transferred to Fannie Mae without payment of any consideration by Fannie Mae and without any action by the Participant.
~~V.    Performance Share Awards and Stock Bonuses~~
V.   Performance Share Awards and Stock Bonuses
5.1 Grants of Performance Share Awards.
(a)
The Committee, in its discretion, may grant Performance Share Awards to Eligible Employees. An Award shall specify the maximum number of shares of Common Stock (if any) subject to the Performance Share Award and its terms and conditions. The Committee shall establish the specified period (a “performance cycle”) for the
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Performance Share Award and the measure(s) of the performance of Fannie Mae (or any part thereof) or the Eligible Employee. The Committee, during the performance cycle, may make such adjustments to the measure(s) of performance as it may deem appropriate to compensate for, or reflect, any significant changes that may occur in accounting practices, tax laws and other laws or regulations that alter or affect the computation of the measure(s). The Award Document shall specify how the degree of attainment of the measure(s) over the performance cycle is to be determined.
(b) In its discretion, the Committee may grant Performance Share Awards which, by their terms, provide that, upon a Change in Control Event, payments shall be made with respect to a Performance Share Award held for more than one year from the Award Date by an Eligible Employee, based on the assumption that the performance achievement specified in the Award would have been attained by the end of the performance cycle. If the Committee approves an employment agreement with an Eligible Employee that provides for payments with respect to a Performance Share Award upon the employee’s termination, payments shall be made with respect to such Performance Share Awards in accordance with the terms of such Eligible Employee’s employment agreement.
(c) Unless otherwise provided by the Committee or in an Eligible Employee’s employment agreement approved by the Committee, if an Eligible Employee’s employment is terminated because of Retirement, Total Disability or Early Retirement prior to the end of the performance cycle, but at least 18 months after the first day of the performance cycle, such Eligible Employee shall receive a pro rata Performance Share Award, calculated as if the Eligible Employee were employed by Fannie Mae at the end of the performance cycle but adjusted to reflect the portion of the performance cycle in which the Participant actually was employed by Fannie Mae, payable in full as soon as practicable after the end of the performance cycle.
(d) Unless otherwise provided by the Committee or in an Eligible Employee’s employment agreement approved by the Committee, if an Eligible Employee’s employment is terminated because of the Eligible Employee’s death prior to the end of the performance cycle, but at least 18 months after the first day of the performance cycle, the Eligible Employee shall receive a pro rata Performance Share Award, payable in full as soon as practicable after the Eligible Employee’s death, in an amount that is based upon the Committee’s assessment of the likelihood of Fannie Mae’s success in attaining the performance measures by the end of the performance cycle and the portion of the performance cycle during which the Eligible Employee was employed by Fannie Mae, and calculated using the date of the Eligible Employee’s death as the date for establishing the Fair Market Value of such Award.

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(e) Unless otherwise provided by the Committee or in an Eligible Employee’s employment agreement approved by the Committee, if, after the end of the performance cycle, an Eligible Employee’s employment is terminated because of the Eligible Employee’s Retirement, Total Disability, death or Early Retirement, all portions of the Eligible Employee’s Performance Share Award not yet paid shall be paid in full as soon as practicable thereafter, except to the extent subject to a deferral election under Section 5.3.
(f) Unless otherwise provided by the Committee or in an Eligible Employee’s employment agreement approved by the Committee, any Eligible Employee who is not employed by Fannie Mae on the last day of a performance cycle or on the date of a scheduled payment of any portion of a Performance Share Award (determined without regard to any deferral election under Section 5.3), other than by reason of the Eligible Employee’s Retirement, Total Disability, death or Early Retirement, shall forfeit such payment and all future payments with respect to such performance cycle.
5.2 Grants of Stock Bonuses.The Committee may grant a Stock Bonus to any Eligible Employee in such amounts of shares of Common Stock and on such terms and conditions as determined from time to time by the Committee.
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5.3 Deferred ~~Payments~~Payments..  The Committee, in its discretion, may permit any Eligible Employee to defer receipt of a Performance Share Award. Such deferral shall be subject to such further conditions, restrictions or requirements as the Committee may impose, subject to any vested rights of the Eligible Employee.
~~VI.    Nonmanagement Director Options~~
VI.   Nonmanagement Director Options
6.1 ~~Participation~~Participation..  Awards under this Article VI shall be made only to Nonmanagement Directors.
6.2 Annual Option ~~Grants~~Grants..
(a) Annual Awards.  On the first day of the Director Term in 2004 and in each subsequent year prior to the Plan Termination Date (each of which shall be the Award Date), there shall be granted automatically (without any action by the Board or the Committee) to each Nonmanagement Director then in office a Nonqualified Stock Option to purchase 4,000 shares of Common Stock. Any Nonmanagement Director appointed or elected to office during a Director Term shall be granted automatically (without any action by the Board or the Committee) a Nonqualified Stock Option (the Award Date of which shall be the date such person takes office) to purchase the nearest whole number of shares of Common Stock equal to 4,000 multiplied by the number of partial or full calendar months remaining in the Director Term in which the Award is granted divided by 12.
(b) Maximum Number of Shares.  Annual grants that would otherwise cause the total Awards under this Plan to exceed the maximum number of shares of Common Stock under Section 1.5(b) shall be prorated to come within such limitation.
(c)
Discontinuance of Annual Option Grants.
  Notwithstanding Section 6.2(a), no additional annual grants of Nonqualified Stock Options pursuant to Section 6.2(a) shall be made to Nonmanagement Directors after the grants made with respect to the annual meeting of the shareholders held in 2004.
6.3 Option ~~Price~~Price..  The exercise price per share of Common Stock covered by each Option granted under Sections 6.2 or 6.7 shall be 100 percent of the Fair Market Value on the Award Date. Notwithstanding any provision of the Plan, an Option may not be modified so as to reduce the exercise price of the Option. The exercise price of any Option granted under this Article shall be paid in full at the time of each purchase, in cash or by check or in shares of Common Stock valued at their Fair Market Value on the date of exercise of the Option, or partly in shares and partly in cash.

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6.4 Option Period and Ability to ~~Exercise~~Exercise.  .    Each Option granted under Sections 6.2 or 6.7 shall provide that the Option shall expire ten years from the Award Date and shall be subject to earlier termination as provided below. Each Option granted under Sections 6.2 or 6.7 shall vest and become exercisable over a four-year period at a rate of 25 percent each year on the anniversary of the date of grant.
6.5 Termination of Directorship.  If an NMD Participant’s services as a member of the Board terminate for any reason, any Option granted under Sections 6.2 or 6.7 held by the NMD Participant shall immediately vest and may be exercised until the earlier of one year after the date of such termination or the expiration of the stated term of the Option.
6.6 Adjustments.  Options granted under Sections 6.2 or 6.7 shall be subject to adjustment as provided in Section 8.2, but only to the extent that such adjustment is based on objective criteria and is consistent with adjustments to Options or other Awards held by persons other than Nonmanagement Directors.
6.7 Additional Option Awards.  Under this Article VI, the Committee may grant additional Option Awards to Nonmanagement Directors as appropriate, based on market compensation data or other information or circumstances.
VII.  Nonmanagement Director Restricted Stock
7.1 Participation.  Awards under this Article VII shall be made only to Nonmanagement Directors. Neither the Plan nor any action taken under the Plan shall give any NMD Participant the right to be reappointed or renominated to serve as a member of the Board.
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7.2 ~~Amount~~Annual Grant of Restricted Stock.
~~Amount of Awards~~.  Each Nonmanagement Director who is a member of the Board immediately following the annual meeting of the shareholders of Fannie Mae in 2006 or 2010 shall be granted, immediately following such annual meeting, an Award of shares of Restricted Stock (rounded to the nearest full share) having an aggregate Fair Market Value on the date of grant equal to $75,000 in 2006 and $90,000 in 2010. A Nonmanagement Director who is newly appointed or elected after the annual meeting of shareholders in 2006 or 2010 shall receive an Award of shares of Restricted Stock equal to the number of shares (rounded to the nearest full share) that would have been granted to such newly appointed or elected Nonmanagement Director had he or she been a member of the Board on the date of the annual meeting of the shareholders of Fannie Mae in the year 2006 or 2010, as the case may be, multiplied by the number of partial or full calendar months remaining in the four-year Award cycle from the date of the Nonmanagement Director’s appointment or election divided by 48.
(a) Commencing with the annual meeting of the Company’s shareholders held in 2008, each Nonmanagement Director who is a member of the Board immediately following each annual meeting of the shareholders of the Company, shall be granted, immediately following such annual meeting, a Restricted Stock Award in the form of units (rounded down to the nearest full unit) representing shares of Common Stock. In 2008, this grant shall have an aggregate Fair Market Value on the date of grant equal to $135,000. In future years, the amount of the grant shall be equal to $135,000 or such other amount to be determined by the Board prior to the annual meeting. The Committee may determine, prior to the scheduled grant date, to substitute Restricted Stock in the form of restricted shares of Common Stock for the Restricted Stock units granted under Section 7.2.
(b) A Nonmanagement Director who is newly appointed or elected after the annual meeting of the Company’s shareholders held in 2008 and between annual meetings of the Company’s shareholders shall be granted upon such appointment or election a pro rata portion of the Award of Restricted Stock that would have been granted to such newly appointed or elected Nonmanagement Director under Section 7.2(a) had he or she been a member of the Board on the date of the annual meeting of the shareholders of ~~Fannie Mae in~~ the ~~year 2006~~Company occurring immediately prior to his or ~~2010, as~~her election or appointment. The pro rata portion shall be determined by multiplying the ~~case may be, multiplied~~

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number of units or shares of Restricted Stock that would have been awarded had the newly appointed or elected Nonmanagement Director been a member of the Board immediately following the annual meeting of shareholders occurring immediately prior to his or her election or appointment by a fraction, the numerator of which is twelve minus the number of ~~partial or~~ full calendar months ~~remaining in the four-year Award cycle from the date of~~between such annual meeting and the Nonmanagement Director’s appointment or election, ~~divided by 48.~~and the denominator of which is twelve, with the resulting total rounded down to the nearest full unit or share.
~~7.3~~(c) ~~Restrictions~~The Restricted Stock granted under Sections 7.2(a) and ~~Vesting~~.(b) shall become 100 percent vested on the day before the annual meeting of the Company’s shareholders that first occurs following the date of grant, but in no event later than the one year anniversary of the date of grant. The Restricted Stock granted under Sections 7.2(a) and 7.2(b) shall also become 100 percent vested, to the extent not previously vested, upon termination of the NMD Participant’s membership on the Board because of (i) Total Disability or (ii) death. Any Restricted Stock that is not vested (or that does not become vested in accordance with the previous sentence) shall be forfeited upon the termination of the NMD Participant’s membership on the Board.
~~(a)~~(d) ~~Pre-Vesting Restrictions.~~    ~~Except as provided~~Unless delivery of the shares has been deferred by the NMD Participant in accordance with Section ~~1.9,~~7.3, promptly after, and in all events within 30 days after the vesting of the Restricted Stock, shares of ~~Restricted~~Common Stock ~~may not~~equal to the number of units or shares which have become vested shall be ~~sold, assigned, transferred, pledged~~delivered to the NMD Participant or ~~otherwise disposed of or encumbered, either voluntarily or involuntarily, until~~other person entitled under the ~~restrictions have lapsed.~~Plan to receive the shares.
~~(b)~~(e) An NMD Participant receiving Restricted Stock units shall be entitled to receive dividend equivalents with respect to the Restricted Stock units. Dividend equivalents shall be paid in the same amount and ~~Voting Rights.~~    Aat the same time as dividends are paid on the Common Stock. An NMD Participant receiving shares of Restricted Stock shall be entitled to cash dividend and voting rights for all shares of Common Stock issued even though they are not ~~vested, provided that such rights shall terminate immediately as to any~~vested.
(f) The awards of Restricted Stock ~~that is forfeited under~~with a value of $75,000 in 2006 and $90,000 in 2010 provided for in Section ~~7.3(e).~~7.2 as originally adopted and approved by the shareholders on May 20, 2003 shall not be granted.
~~(c)~~7.3 ~~Vesting.~~    ~~Unless~~
Deferrals.
  An NMD Participant may elect to defer the shares that the NMD Participant would otherwise receive pursuant to Section 7.2(d) by submitting an irrevocable deferral election (in a form provided by the ~~Committee for~~Company) no later than December 31 of the year prior to the year in which the grant of Restricted Stock ~~granted under Section 7.5,~~is made. Dividend equivalents shall be credited with respect to the ~~restrictions on Restricted~~deferred shares at the same time dividends are paid with respect to the Common Stock, ~~granted under this Article VII~~and shall ~~lapse as follows. On the day before each annual meeting of Fannie Mae’s shareholders, each Restricted Stock Award granted~~be deemed to a NMD Participant under this Article VII shall vest, and the restrictions on such Restricted Stock shall lapse, at a rate of 25% per year (or by the appropriate pro-rata percentage for Nonmanagement Directors newly appointed or elected after the annual meetingbe reinvested in ~~2006 or 2010). Promptly after the lapse of restrictions on Restricted Stock,~~additional deferred shares of Common Stock ~~equal to~~based on the ~~number~~Fair Market Value of the Common Stock on the date credited. Distributions of shares ~~or units as to which the restrictions have lapsed (or such lesser number as may be permitted~~deferred pursuant to this Section ~~8.4)~~7.3 shall be ~~delivered or credited to~~paid in a single lump-sum distribution (with cash paid for fractional shares) on the first business day of the month that is six months following the month in which the NMD Participant orseparates from service within the meaning of Section 409A of the Code. Deferrals made pursuant to this Section 7.3 shall be subject to such other ~~person entitled under the Plan to receive the shares.~~
~~(d)~~ ~~Accelerated Vesting~~~~.    Unless otherwise provided~~terms and conditions established by the ~~Committee for Restricted Stock granted under Section 7.5, the restrictions on Restricted Stock granted under this Article VII~~Company and set forth in a deferral election form and related documents. All deferrals hereunder shall ~~lapse upon the NMD Participant’s membership on the Board terminating because of (i) Total Disability, (ii) death, or (iii) as to~~be accomplished in a ~~Nonmanagement Director who is elected to the Board by the shareholders, not being renominated after reaching age 70.~~
~~(e)~~ ~~Forfeiture.~~    ~~Unless otherwise provided by the Committee for Restricted Stock granted under Section 7.5, Restricted Stock granted under Article VII as to which the restrictions have not lapsed in accordance~~manner consistent with the ~~provisions~~requirements of Section 409A of the Award or pursuant to Section 7.3(c) or (d) shall be forfeited upon the termination of a NMD Participant’s membership on the Board. Upon the occurrence of any forfeiture of Restricted Stock, the forfeited Restricted Stock shall be automatically transferred to Fannie Mae without payment of any consideration by Fannie Mae and without any action by the NMD Participant.Code.
~~Restrictions and Vesting~~.
~~(a) Pre-Vesting Restrictions.~~  Except as provided in Section 1.9, shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise disposed of or encumbered, either voluntarily or involuntarily, until the restrictions have lapsed.
~~(b) Dividend and Voting Rights.~~  A NMD Participant receiving shares of Restricted Stock shall be entitled to cash dividend and voting rights for all shares of Common Stock issued even though they are not vested, provided that such rights shall terminate immediately as to any Restricted Stock that is forfeited under Section 7.3(e).

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~~(c) Vesting.~~  Unless otherwise provided by the Committee for Restricted Stock granted under Section 7.5, the restrictions on Restricted Stock granted under this Article VII shall lapse as follows. On the day before each annual meeting of Fannie Mae’s shareholders, each Restricted Stock Award granted to a NMD Participant under this Article VII shall vest, and the restrictions on such Restricted Stock shall lapse, at a rate of 25% per year (or by the appropriate pro-rata percentage for Nonmanagement Directors newly appointed or elected after the annual meeting in 2006 or 2010). Promptly after the lapse of restrictions on Restricted Stock, shares of Common Stock equal to the number of shares or units as to which the restrictions have lapsed (or such lesser number as may be permitted pursuant to Section 8.4) shall be delivered or credited to the NMD Participant or other person entitled under the Plan to receive the shares.
~~(d) Accelerated Vesting.~~  Unless otherwise provided by the Committee for Restricted Stock granted under Section 7.5, the restrictions on Restricted Stock granted under this Article VII shall lapse upon the NMD Participant’s membership on the Board terminating because of (i) Total Disability, (ii) death, or (iii) as to a Nonmanagement Director who is elected to the Board by the shareholders, not being renominated after reaching age 70.
~~(e) Forfeiture.~~  Unless otherwise provided by the Committee for Restricted Stock granted under Section 7.5, Restricted Stock granted under Article VII as to which the restrictions have not lapsed in accordance with the provisions of the Award or pursuant to Section 7.3(c) or (d) shall be forfeited upon the termination of a NMD Participant’s membership on the Board. Upon the occurrence of any forfeiture of Restricted Stock, the forfeited Restricted Stock shall be automatically transferred to Fannie Mae without payment of any consideration by Fannie Mae and without any action by the NMD Participant.
7.4 Adjustments.  Restricted Stock granted under this Article VII shall be subject to adjustment as provided in Section ~~8.2,~~8.2.~~, but only to the extent that such adjustment is based on objective criteria and is consistent with adjustments to Restricted Stock or other Awards held by persons other than Nonmanagement Directors.~~
7.5 Additional Restricted Stock ~~Awards~~.
and Other Stock
Awards.
(a) Under this Article VII, the Committee may grant additional Restricted Stock Awards to Nonmanagement Directors as appropriate, based on market compensation data or other information or circumstances.
The Committee may also grant Awards consisting of deferred Common Stock to Nonmanagement Directors who elect to convert their Nonmanagement Director retainer payments into deferred Common Stock, in each case consistent with the requirements of Section 409A of the Code.
(b) An NMD Participant who elects to convert his or her Nonmanagement Director retainer payments into deferred Common Stock pursuant to Section 7.5(a) shall submit an irrevocable deferral election (in a form provided by the Company) no later than December 31 of the year prior to the year in which the retainer payments are earned and paid. Notwithstanding the forgoing, a newly appointed or elected NMD Participant may make an election to convert the NMD Participant’s retainer payments for the current calendar year into deferred Common Stock; provided, that, such election is made no later than thirty days following the Participant’s appointment or election to the Board and applies only to payments that are earned and paid after the date of the election. Dividend equivalents shall be credited with respect to the deferred shares at the same time dividends are paid with respect to the Common Stock, and shall be deemed to be reinvested in additional deferred shares of Common Stock based on the Fair Market Value of the Common Stock on the date credited. Distributions of shares deferred pursuant to this Section 7.5(b) shall be paid in a single lump-sum distribution (with cash paid for fractional shares) on the first business day of the month that is six months following the month in which the NMD Participant separates from service within the meaning of Section 409A of the Code. Deferrals made pursuant to this Section 7.5(b) shall be subject to such other terms and

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conditions, consistent with Section 409A of the Code, as may be established by the Company and set forth in a deferral election form and related documents.
VIII.  Other Provisions
8.1 Rights of Eligible Employees, Participants and Beneficiaries.
(a) Employment Status.  Status as an Eligible Employee shall not be construed as a commitment that any Award will be made under this Plan to an Eligible Employee or to Eligible Employees generally.
(b) No Employment ~~Contract~~Contract..  Nothing contained in the Plan (or in any other documents related to the Plan or to any Award) shall confer upon any Participant any right to continue in the employ or other service of Fannie Mae or constitute any contract or agreement of employment or other service, nor shall the Plan interfere in any way with the right of Fannie Mae to change such person’s compensation or other benefits or to terminate the employment of such person, with or without cause; provided, however, that nothing contained in the Plan or any related document shall adversely affect any independent contractual right of any Participant without the Participant’s consent.
(c) Plan Not Funded.  Awards payable under the Plan shall be payable in shares of Common Stock or from the general assets of Fannie Mae, and (except as provided in Section 1.5(c)) no special or separate reserve, fund or deposit shall be made to assure payment of Awards. No Participant, Beneficiary or other person shall have any right, title or interest in any fund or in any specific asset (including shares of Common Stock, except as expressly otherwise provided) of Fannie Mae by reason of any Award hereunder. Neither the provisions of the Plan (or of any related documents), nor the creation or adoption of the Plan, nor any action taken pursuant to the provisions of the Plan shall create, or be construed to create, a trust of any kind or a fiduciary relationship between Fannie Mae and any Participant, Beneficiary or other person. To the extent that a Participant, Beneficiary or other person acquires a right to receive payment pursuant to any Award hereunder, such right shall be no greater than the right of any unsecured general creditor of Fannie Mae.
8.2 Adjustments.
(a) Events Requiring Adjustments.  If any of the following events occur, the Committee shall make the adjustments described in Section 8.2(b): (i) any recapitalization, stock split (including a stock split in the form of a stock dividend), reverse stock split, reorganization, merger, combination, consolidation,split-up, spin-off, combination, repurchase or exchange of Common Stock or other securities of Fannie Mae, (ii) any issuance of warrants or other rights to purchase shares of Common Stock or other securities of Fannie Mae (other than to employees) at less than 80 percent of Fair Market Value on the date of such issuance, (iii) a sale of substantially all the assets of Fannie Mae, or (iv) any other similar corporate transaction or event with respect to the Common Stock.
(b) Adjustments to Awards.  If any of the events described in Section 8.2(a) occurs, then the Committee shall, in the manner and to the extent (if any) as it deems appropriate and equitable, (i) proportionately adjust any or all of (1) the number and type of shares of Common Stock that thereafter may be made the subject of Awards (including the specific maximum set forth in Section 1.5), (2) the number, amount and type of shares of Common Stock subject to any or all outstanding Awards, (3) the grant, purchase or exercise price of any or all outstanding Awards, (4) the shares of Common Stock or cash deliverable upon exercise of any outstanding Awards, or (5) the performance standards appropriate to any outstanding Awards; or (ii) make provision for a cash payment or for the substitution or exchange of any or all outstanding Awards based upon the distribution or consideration payable to holders of Common Stock upon or in respect of the event; provided, however, in each case, that with respect to Awards of Incentive Stock Options,

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no adjustment shall be made that would cause the Plan to violate Section 422 or 424(a) of the Code or any successor provisions thereto.
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8.3 Compliance with Laws.  The Plan, the granting and vesting of Awards under the Plan and the issuance and delivery of shares of Common Stock and the payment of money under the Plan or under Awards granted hereunder are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to state and federal securities law and federal margin requirements) and to approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for Fannie Mae, be necessary or advisable in connection therewith. Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring the securities shall, if requested by Fannie Mae, provide such assurances and representations to Fannie Mae, as Fannie Mae may deem necessary or desirable to assure compliance with all applicable legal requirements.
8.4 Tax Withholding.  Upon any exercise, vesting or payment of any Award or upon the disposition of shares of Common Stock acquired pursuant to the exercise of an Incentive Stock Option prior to satisfaction of the holding period requirements of Section 422 of the Code (or any successor provision), the Committee may make such provisions and take such steps as it may deem necessary or appropriate for the withholding by Fannie Mae of all federal, state, local and other taxes required by law to be withheld, including without limitation, the right, at its option, to the extent permitted by law (i) to require the Participant (or Personal Representative or Beneficiary, as the case may be) to pay or provide for payment of the amount of any taxes that Fannie Mae may be required to withhold with respect to the transaction as a condition to the release of the shares of Common Stock or the making of any payment or distribution, or (ii)(a) to deduct from any amount payable in cash, or (b) to reduce the number of shares of Common Stock otherwise deliverable (or otherwise reacquire such shares), based upon their Fair Market Value on the date of delivery, or (c) to grant the Participant the right to elect reduction in the number of shares upon such terms and conditions as it may establish for the amount of any taxes that Fannie Mae may be required to withhold.
8.5 Plan Amendment, Termination and Suspension.
(a) Board Authorization.  Subject to this Section 8.5, the Board may, at any time, terminate or amend, modify or suspend the Plan, in whole or in part. No Awards may be granted during any suspension of the Plan or after termination of the Plan, but the Committee shall retain jurisdiction as to Awards then outstanding in accordance with the terms of the Plan.
(b) Shareholder Approval.  If any amendment would (i) materially increase the benefits accruing under the Plan, or (ii) materially increase the aggregate number of shares of Common Stock that may be issued under the Plan (except as provided in Section 8.2), then to the extent deemed necessary or advisable by the Board or as required by law or the rules of the NYSE, such amendment shall be subject to shareholder approval.
(c) Amendments to Awards.  Without limiting any other express authority granted under the Plan, but subject to its express limits, the Committee may waive conditions of or limitations on Awards, without the consent of the Participant, and may make other changes to the terms and conditions of Awards that do not affect the Participant’s rights and benefits under an Award in any materially adverse manner.
(d) Limitations on Amendments to Plan and Awards.  No amendment, suspension or termination of the Plan or any change affecting any outstanding Award shall, without the written consent of the Participant, Beneficiary or Personal Representative, as applicable, affect in any manner materially adverse to such person any rights or benefits of any such person or any obligations of Fannie Mae under any Award granted under the Plan prior to the effective date of such change; however, any changes made pursuant to Section 8.2 shall not be deemed to constitute changes or amendments for purposes of this Section 8.5.

A-19
~~C-17~~
8.6 Privileges of Stock Ownership.Except as otherwise expressly authorized by the Committee or the Plan and expressly stated in an Award Document, a Participant shall not be entitled to any privilege of stock ownership as to any shares of Common Stock not actually delivered to and held of record by the Participant. No adjustment shall be made for dividends or other shareholder rights for which a record date is prior to the date of delivery of such shares.
8.7 Effective Date of the Plan.The Plan shall be effective as of the date of the meeting at which the shareholders of Fannie Mae approve it.
8.8 Term of the Plan.~~Except for any Award pursuant to Section 7.2 granted to a Nonmanagement Director who is newly appointed or elected to the Board during the2010-2014 cycle, no~~No Award shall be granted after the Plan Termination Date. Unless otherwise expressly provided in the Plan or in an applicable Award Document, any Award may extend beyond the Plan Termination Date, and all authority of the Committee with respect to Awards hereunder shall continue during any suspension of the Plan and in respect of Awards outstanding on the Plan Termination Date.
8.9 Governing Law/Construction/Severability.
(a) Choice of Law.  The Plan, the Awards, all documents evidencing Awards, and all other related documents shall be governed by, and construed in accordance with the laws of the District of Columbia, without reference to its principles of conflicts of law.
(b) Severability.  If any provision shall be held by a court of competent jurisdiction to be invalid and unenforceable, the remaining provisions of the Plan shall continue in effect.
8.10 Captions.Captions and headings are given to the sections and subsections of the Plan solely as a convenience to facilitate reference. The headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or of its provisions.
8.11 Effect of Change of Subsidiary Status.For purposes of the Plan and any Award, if an entity ceases to be a Subsidiary, the employment of all Participants who are employed by such entity shall be deemed to have terminated, except any Participant who continues as an employee of another entity within Fannie Mae.
8.12 Nonexclusivity of Plan.Nothing in the Plan shall limit or be deemed to limit the authority of the Board or the Committee to grant awards or authorize any other compensation, with or without reference to the Common Stock, under any other plan or authority.
8.13 Plan Binding on Successors.The obligations of Fannie Mae under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of Fannie Mae, or upon any successor corporation or organization succeeding to substantially all of the assets and business of Fannie Mae. Fannie Mae agrees that it will make appropriate provisions for the preservation of all Participants’ rights under the Plan in any agreement or plan that it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets.

A-20
LE044
VOTE BY INTERNET — www.proxyvote.comUse the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on December 13, 2007. Have your proxy card in hand when you access the web site and follow the instructions to obtain yourFANNIE MAErecords and to create an electronic voting instruction form.3900 WISCONSIN AVENUE NWWASHINGTON, DC 20016ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONSIf you would like to reduce the costs Fannie Mae incurs in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above about how to vote by Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years.VOTE BY TELEPHONE — 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on December 13, 2007. Have your proxy card in hand when you call and then follow the instructions.VOTE BY MAILMark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Fannie Mae, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717 so that it is received by close of business on December 13, 2007.Your voting instructions are confidential. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:FANMA1KEEP THIS PORTION FOR YOUR RECORDSTHIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.DETACH AND RETURN THIS PORTION ONLYFANNIE MAE            The Board of Directors recommends a vote FOR Proposals 1, 2 and 3.COMPANY PROPOSALSFor Against For AllTo vote against any individual nominee(s), 1. Proposal to elect 12 directorsAllAll Exceptmark “For All Except” and write the name(s) of the nominee(s) on the line below.01) Stephen B. Ashley 07) Daniel H. Mudd 02) Dennis R. Beresford 08) LeslieRahl 03) Louis J. Freeh 09) John C. Sites, Jr.0 0 004) Brenda J.Gaines 10) Greg C. Smith05) Karen N. Horn, Ph.D. 11) H. Patrick SwygertFor Against Abstain06) Bridget A.Macaskill 12) John K. Wulff2. Proposal to ratify the selection of Deloitte & Touche LLP as independent registered public accounting firm for 2007.0 0 03.Proposal to approvean amendment to the Fannie Mae Stock Compensation Plan of 2003.0 0 0 The Board of Directors recommends a vote AGAINST Proposals 4 and 5. For Against Abstain SHAREHOLDER PROPOSALS4. Proposal to require shareholder advisory vote on executive compensation.0 0 05. Proposal to authorize cumulative voting.0 0 0Please date and sign below exactly as your name or names appear on this Please indicate if you plan to attend this meeting.0 0proxy card. Joint owners should each sign personally. Corporate proxies should be signed in full corporate name by an authorized officer andYes Noattested. Any person signing in a fiduciary capacity should indicate his or her full title in the fidiciary capacity. Signature [PLEASE SIGN WITHIN BOX]DateSignature (Joint Owners)Date

~~C-18~~
[LOGO] FannieMae 3900 Wisconsin Avenue, NW Washington, DC 20016 PROXY FOR ANNUAL MEETING OF SHAREHOLDERS--May 20, 2003 I/we, by signing this proxy card, hereby appoint STEPHEN B. ASHLEY, THOMAS P. GERRITY, and JOE K. PICKETT, and each of them, proxies, with full power of substitution, to vote my/our stock at the Annual Meeting of Shareholders of Fannie Mae on May 20, 2003 at 10 A.M. (local time) at the Hotel Monaco Salt Lake City, 15 West 200 South, Salt Lake City, Utah, and at any adjournments, as fully as I/we could if personally present, on the matters of election of directors, ratification of the selection of auditors, approval of the Stock Compensation Plan of 2003, and one stockholder proposal, as more fully described in the Proxy Statement, and upon any other matter that may come before such meeting. Nominees for the Election of Directors are: (01) S.B. Ashley, (02) K.M. Duberstein, (03) T.P. Gerrity, (04) T. Howard (05) A. McLaughlin Korologos, (06) F.V. Malek, (07) D.B. Marron, (08) D.H. Mudd, (09) A.M. Mulcahy, (10) J.K. Pickett, (11) F.D. Raines, and (12) H.P. Swygert (Continued and to be signed on the reverse side) PLEASE FOLD AND DETACH HERE P R O X Y
| | 2335 X Please mark your |______ votes as in this example. - ---------------------------------------------------------------------------------------------------------------------------------- The Directors Recommend a Vote FOR All Nominees in Item 1, FOR Item 2 and FOR The Directors Recommend a Vote AGAINST Item 4 Item 3 - ---------------------------------------------------------------------------------------------------------------------------------- FOR WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN 1. Election of 2. Ratification of the 4. Stockholder Proposal to Nominees as [ ] [ ] Selection of [ ] [ ] [ ] Reinstate Cumulative [ ] [ ] [ ] Directors: Auditors Voting Withheld for: (Write name of nominee(s) in the space provided 3. Approval of the [ ] [ ] [ ] below. Stock Compensation - --------------------------------- Plan of 2003 - ----------------------------------------------------------------------------------------------------------------------------------- This Proxy is Solicited on Behalf of the Board of Directors This proxy when properly executed will be voted in the manner directed herein by the undersigned stockholder. Unless the stockholder specifies otherwise, the shares represented here will be voted in accordance with the recommendations of the Directors set forth above. Signature(s)________________________________________ Date _________________ Please mark, date, and sign your name exactly as it appears on this card and return in the enclosed envelope. When signing as attorney, executor, administrator, trustee, guardian, or officer of a corporation, please give your full title as such. For joint accounts each joint owner should sign. (triangle up) PLEASE FOLD AND DETACH HERE (triangle up) [LOGO] FannieMae Your vote is important. You may vote the shares held in this account in any one of the following three ways: . Vote by mail. Complete, date, sign and mail your proxy card (above) in the enclosed postage-paid envelope. . Vote by phone. Call toll-free, 1-877-PRX-VOTE (1-877-779-8683) 24 hours a day, 7 days a week from the U.S. and Canada to vote your proxy. . Vote by Internet. Access the Web site at http://www.eproxyvote.com/fnm 24 hours a day, 7 days a week. If you vote by phone or via the Internet, please have your social security number and proxy card available. The sequence of numbers appearing in the box above, just below the perforation, and your social security number are necessary to verify your vote. A phone or Internet vote authorizes the named proxies in the same manner as if you marked, signed and returned this proxy card. If you vote by phone or vote using the Internet, there is no need for you to mail back your proxy card. THANK YOU FOR VOTING
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORSFOR THE 2007 ANNUAL MEETING OF SHAREHOLDERS DECEMBER 14, 2007You, the undersigned shareholder, appoint each of Joe K. Pickett, Karen N. Horn and Brenda J. Gaines, your attorney-in-fact and proxy, with full power of substitution, to vote on your behalf shares of Fannie Mae common stock that you would be entitled to vote at the 2007 Annual Meeting of Shareholders, and any adjournment of the meeting, with all powers that you would have if you were personally present at the meeting.The shares represented by this proxy will be voted as instructed by you and in the discretion of the proxies on all other matters. If not otherwise specified, shares will be voted FOR Proposals 1, 2 and 3, and AGAINST Proposals 4 and 5. Voting Methods:If you wish to vote by mail, please sign your name exactly as it appears on this proxy and mark, date and return it in the enclosed envelope. If you wish to vote by Internet or telephone, please follow the instructions on the reverse side. If you submit your proxy by Internet or telephone, please do not return your proxy card.

¨ ~~PreliminaryProxy Statement~~		¨ ~~Confidential, For Use of the Commission Only(as permitted by Rule 14a-6(e)(2))~~
x ~~Definitive Proxy Statement~~
¨ ~~Definitive Additional Materials~~
¨ ~~Soliciting Material Under Rule 14a-12~~


þ	No fee required.

1.o		~~Title of each class of securities to which transaction applies:~~Fee computed on table below per Exchange ActRules 14a-6(i)(1) and0-11.

~~Certain Transactions and Relationships~~		29

Proposal 2: Ratification of ~~Auditors~~Independent Registered Public Accounting Firm		30 61

Proposal 3: Approval of Amendment to Fannie Mae Stock Compensation Plan of 2003		31 62

~~Proposal 4:~~ Shareholder ~~Proposal~~Proposals		36 71

Other Matters		36 76

Shareholder Proposals and Director Nominations for ~~2004~~2008		37 76

Cost of Annual Meeting and Proxy Solicitation		37 77

Form~~Form~~ 10-K		37

~~Section 16(a) Beneficial Ownership Reporting~~		37

~~APPENDIX A: Audit Committee Charter~~		~~A-1~~

~~APPENDIX B: Corporate Governance Guidelines~~		~~B-1~~

~~APPENDIX C: Fannie Mae Stock Compensation Plan of 2003~~		~~C-1~~ 77

	proxy card. You will need the12-digit Control Number included on your Notice of Internet Availability and on your proxy card.

•	*Vote by telephone.* To vote by telephone, dial(800) 690-6903 using a touch-tone telephone and follow the recorded instructions. You will need the12-digit Control Number included on your Notice of Internet Availability and on your proxy card.

•	*Vote by Mail.* To vote by mail, complete, sign, date and return your proxy card in the postage-paid envelope provided.


	Amount and Nature of Beneficial Ownership⁽¹⁾
			Stock Options
			Exercisable and
			Other Shares
	Common Stock		Obtainable		Total
	Beneficially		Within 60 Days		Common Stock
	Owned Excluding		of October 22,		Beneficially
Name and Position	Stock Options		2007⁽²⁾		Owned

Stephen B. Ashley⁽³⁾		20,747		25,000		45,747
Chairman of the Board of Directors
Dennis R. Beresford⁽⁴⁾		719		0		719
Director
Robert T. Blakely⁽⁵⁾		12,421		0		12,421
Executive Vice President
Louis J. Freeh		0		0		0
Director
Brenda J. Gaines⁽⁶⁾		487		0		487
Director
Karen N. Horn⁽⁷⁾		487		0		487
Director
Robert J. Levin⁽⁸⁾		453,439		401,177		854,616
Executive Vice President and Chief Business Officer
Bridget A. Macaskill⁽⁹⁾		1,062		0		1,062
Director
Daniel H. Mudd⁽¹⁰⁾		411,157		590,136		1,001,293
President and Chief Executive Officer
Peter S. Niculescu⁽¹¹⁾		146,949		188,209		335,158
Executive Vice President—Capital Markets
Joe K. Pickett⁽¹²⁾		12,882		27,000		39,882
Director
Leslie Rahl⁽¹³⁾		3,281		4,333		7,614
Director
John C. Sites, Jr.		0		0		0
Director
Greg C. Smith⁽¹⁴⁾		1,612		332		1,944
Director
Julie St. John⁽¹⁵⁾		45,033		269,964		314,997
Former Executive Vice President and Chief Information Officer
H. Patrick Swygert⁽¹⁶⁾		3,550		10,833		14,383
Director
Beth A. Wilkinson⁽¹⁷⁾		70,135		0		70,135
Executive Vice President, General Counsel and Corporate Secretary


	2.		Aggregate number of securities to which transaction applies:


	3.		Per unit price or other underlying value of transaction computed pursuant to Exchange ActRule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):


	¨	o	Check box if any part of the fee is offset as provided by Exchange ActRule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.


	•	elect 12 directors, each for a term ending on the date of our next annual meeting,

	•	ratify the selection by the Audit Committee of Deloitte & Touche LLP as our independent registered public accounting firm for 2007,

	•	approve an amendment to the Fannie Mae Stock Compensation Plan of ~~Directors of KPMG LLP as auditors for~~ 2003,

	•	act on certain shareholder proposals, and

	•	consider any other business that may properly come before the meeting.

~~About the Annual Meeting~~		1

~~How We Have Done~~		3 Page

About the 2007 Annual ~~Report~~Meeting—Q and A		3 5

~~Five-Year Cumulative Total Return~~Corporate Governance		3 8

~~Stock Ownership~~Corporate Governance Progress		4 8
Corporate Governance Guidelines		8
Codes of Conduct		8
Director Independence		9
Executive Sessions		11
Certain Transactions and Relationships		11
Communications with Directors		13
Stock Ownership		14
Beneficial Ownership Table		14
Section 16(a) Beneficial Ownership Reporting Compliance		16
Proposal 1: Election of Directors		6 17
Composition of the Board of Directors		17
Nominees for Election		6 18

~~Directors Appointed by the President of the United States~~		9

Meetings of the Board of Directors and Committees		11 22

Committees of the Board of Directors		11 23

Directors’ Compensation		12 25

~~Audit Committee Report~~Executive Officers		14 29

~~Compensation Committee Report on~~ Executive Compensation		16 33

~~Nominating~~Compensation Discussion and ~~Corporate Governance Committee Report~~Analysis		20 33

~~Executive Officers Who Are Not Nominees~~Report of the Compensation Committee of the Board of Directors		22 41

~~Executive~~ Compensation Tables		23 42

~~Compensation Tables~~Report of the Audit Committee of the Board of Directors		23 59

~~Fannie Mae Retirement Plans~~		27

~~Employment Arrangements~~		28


•	Election of 12 directors (see page 17)

•	Ratification of Deloitte & Touche, LLP, as Fannie Mae’s independent registered public accounting firm for 2007 (see page 61)

•	Approval of an amendment to the Fannie Mae Stock Compensation Plan of 2003 (see page 62)

•	Two shareholder proposals (see page 71)


•	you can attend the annual meeting and votein person(you will need personal identification for admission to the annual meeting), or

•	you can voteby proxy,whether or not you attend the annual meeting


•	*Vote by Internet.* To vote on the Internet, go to www.proxyvote.com to complete an electronic


	•	*Vote by Internet.* To vote on the Internet, go to the internet address provided on your voting instruction card and complete an electronic voting instruction card.

	•	*Vote by telephone.* To vote over the telephone, dial the toll-free number provided on your voting instruction card using a touch-tone telephone and follow the recorded instructions.

	•	*Vote by Mail.* To vote by mail, complete, sign, date, and return your voting instruction card in the envelope provided.


•	submitting a new proxy over the Internet or by telephone,

•	sending, or presenting in person at the annual meeting, a new, more recently dated proxy or voting instruction card that has been signed by the person executing the prior proxy or voting instruction card,

•	delivering a written statement to the Secretary of Fannie Mae at the address in the Notice of the Annual Meeting stating that the proxy is revoked, or

•	attending the annual meeting and voting in person as described above under “How do I vote?”


o	Fee paid previously with preliminary materials:


•	FOR the director nominees listed on the card,

•	FOR ratification of Deloitte & Touche LLP as Fannie Mae’s independent registered public accounting firm for 2007,

•	FOR approval of an amendment to the Fannie Mae Stock Compensation Plan of 2003, and

•	AGAINST the shareholder proposals.

December 31	Fannie Mae		S&P 500		S&P Financials

1997	$	100	$	100	$	100

1998		132		129		111

1999		113		156		116

2000		160		141		146

2001		149		125		133

2002		123		97		113

		Amount and Nature of Beneficial Ownership (1)

Name	Position	Common Stock Beneficially Owned Excluding Options		Stock Options Exercisable Within 60 Days of Record Date		Total Common Stock Beneficially Owned


Victor H. Ashe	Director	856		7,666		8,522

Stephen B. Ashley	Director	19,351	(2)	18,000		37,351

Molly H. Bordonaro	Director	858		7,666		8,524

Kenneth M. Duberstein	Director	3,011		20,000		23,011

Thomas P. Gerrity	Director	17,251	(3)	20,000		37,251

Jamie S. Gorelick	Vice Chair of the Board	71,977		296,110		368,087

William R. Harvey	Director	1,356		7,666		9,022

Timothy Howard	Executive Vice President, Chief Financial Officer and Nominee	185,783	(4)	408,624	(5)	594,407

Manuel J. Justiz	Director	1,813		6,666		8,479

Ann McLaughlin Korologos	Director	5,751		29,200		34,951

Robert J. Levin	Executive Vice President—Housing and Community Development	165,567	(6)	386,333		551,900

Frederic V. Malek	Director	1,697		4,000		5,697

Donald B. Marron	Director	1,871		8,000		9,871

Daniel H. Mudd	Vice Chairman of the Board and Chief Operating Officer	37,248		152,804		190,052

Anne M. Mulcahy	Director	1,714		12,667		14,381

Joe K. Pickett	Director	4,894		28,000		32,894

Franklin D. Raines	Chairman of the Board and Chief Executive Officer	134,471		1,049,380		1,183,851

Taylor C. Segue, III	Director	856		7,666		8,522

H. Patrick Swygert	Director	1,409		11,666		13,075

All directors and executive officers as a group (25 persons)		788,672		2,944,220		3,732,892

5% Holders		Common Stock Beneficially Owned				Percent of Class


FMR Corp.		97,232,983	(7)			9.831	%
82 Devonshire Street
Boston, Massachusetts 02109

~~(1)~~
⁽¹⁾		Beneficial ownership is determined in accordance with the rules of the SEC for computing the number of shares of common stock beneficially owned by aeach person and the percentage ~~ownership of that person. The amounts include beneficial ownership~~owned. Holders of restricted ~~common~~ stock ~~with~~have no investment power but have sole voting power ~~(including~~over the shares and, accordingly, these shares are included in this table. Because holders of shares through our Employee Stock Ownership Plan, or ESOP, have sole voting power over the shares, these shares are also included in this table. Additionally, although holders of shares through our ESOP have sole voting power through the power to direct the ~~voting~~trustee of ~~restricted common stock~~the plan to vote their shares, to the extent some holders do not provide any direction as to how to vote their shares, the plan trustee may vote those shares in the same proportion as the trustee votes the shares for which the trustee has received direction. Holders of shares through ~~an escrow agent) and~~our ESOP have no investment power unless they are at least 55 years of age and have at least 10 years of participation in the ESOP. Holders of stock options have no investment or voting power over the shares issuable upon the exercise of the options until the options are exercised. Shares issuable upon the vesting of restricted stock units are not considered to be beneficially owned under applicable SEC rules and, accordingly, restricted stock units are not included in the amounts shown.

⁽²⁾		The shares included in this column are not currently outstanding but are issuable within 60 days of the Record Date, and consist of shares issuable upon the exercise of outstanding stock options held by our executive officers and other shares issuable within 60 days. These other shares consist of 70,797 shares issuable upon the exercise of outstanding stock options held by the spouse of one of our executive officers; 1,308 shares of deferred stock held by Mr. Williams, which he could obtain within 60 days in certain circumstances; and shares expected to be paid out to certain of our executive officers within 60 days in connection with our PSP in the following amounts: Mr. Levin—17,586 shares, Mr. Mudd—19,418 shares, Mr. Niculescu—10,722 shares, Mr. Williams—14,381 shares, all directors and officers as ~~follows: all nonmanagement directors, each 697 shares;~~a group—80,939 shares, including 2,526 shares we expect to pay to an executive officer’s spouse.

⁽³⁾		Mr. Ashley’s shares include 1,200 shares held by his spouse and 650 shares of restricted stock.

⁽⁴⁾		Mr. Beresford’s shares include 650 shares of restricted stock.

⁽⁵⁾		The reported amount does not include 111,111 restricted stock units held by Mr. Blakely.

⁽⁶⁾		Ms. Gaines’ shares consist of restricted stock.

⁽⁷⁾		Ms. Horn’s shares consist of restricted stock.

⁽⁸⁾		Mr. Levin’s shares consist of 258,287 shares held jointly with his spouse and 195,152 shares of restricted stock.

⁽⁹⁾		Ms. Macaskill’s shares include 650 shares of restricted stock.

⁽¹⁰⁾		Mr. Mudd’s shares include 297,026 shares of restricted stock. Mr. Mudd ~~10,000 shares;~~must continue to hold 35,301 of these shares after vesting, net of any shares withheld to pay withholding tax liability upon vesting, until his employment with Fannie Mae is terminated. The reported amount does not include 31,903 restricted stock units held by Mr. Mudd.

⁽¹¹⁾		Mr. Niculescu’s shares include 47,541 shares held jointly with his spouse, 234 shares held through our ESOP, and 86,354 shares of restricted stock.

⁽¹²⁾		Mr. Pickett’s shares include 650 shares of restricted stock.

⁽¹³⁾		Ms. Rahl’s shares include 200 shares held by her spouse and 650 shares of restricted stock.

⁽¹⁴⁾		Mr. Smith’s shares include 650 shares of restricted stock.

⁽¹⁵⁾		Ms. St. John left Fannie Mae in December 2006. Information about Ms. St. John’s holdings is based on an amended Form 4 filed by Ms. St. John on July 20, 2007 regarding her shares held as of December 15, 2006. Ms. St. John’s holdings include 869 shares held through our ESOP.

⁽¹⁶⁾		Mr. Swygert’s shares include 650 shares of restricted stock.

⁽¹⁷⁾		Ms. Wilkinson’s shares include 65,564 shares of restricted stock.


	Common Stock
5% Holders	Beneficially Owned		Percent of Class

Capital Research and Management Company⁽¹⁾		167,555,250		17.2	%
333 South Hope Street Los Angeles, CA 90071
Citigroup Inc.⁽²⁾		62,341,565		6.3	%
399 Park Avenue New York, NY 10043
AXA⁽³⁾		52,669,044		5.4	%
25 Avenue Matignon 75008 Paris, France


⁽¹⁾		This information is based solely on information contained on a Schedule 13G/A filed with the SEC on February 12, 2007 by Capital Research and Management Company. According to the Schedule 13G/A, Capital Research and Management Company beneficially owned 167,555,250 shares of our common stock including 91,586,582 shares held by Fidelity Management & Research Company, 3,020,516 shares held by Fidelity Management Trust Company, and 2,344,190 shares owned by Fidelity International Limited. FMR Corp. hasas of December 29, 2006, with sole voting power for ~~5,134,411~~49,477,500 shares and sole dispositive power for ~~97,232,983~~all shares. ~~All~~Capital Research and Management Company’s shares include 3,674,050 shares from the assumed conversion of 3,470 shares of our convertible preferred stock.

⁽²⁾		This information is based solely on information contained in a Schedule 13G/A filed with the SEC on February 9, 2007 by Citigroup Inc. According to the Schedule 13G/A, Citigroup Inc. beneficially owns 62,341,565 shares of our common stock, with shared voting and dispositive power for all such shares.

⁽³⁾		This information ~~regarding FMR Corp.’s~~is based solely on information contained in a Schedule 13G/A filed with the SEC on February 13, 2007 by AXA, its subsidiary AXA Financial, Inc., and a group of entities that together as a group control AXA: AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, and AXA Courtage Assurance Mutuelle. According to the Schedule 13G/A, Alliance Capital Management L.P. and AllianceBernstein L.P., subsidiaries of AXA Financial, Inc., manage a majority of these shares as investment advisors. According to the Schedule 13G/A, (i) each of these entities other than AXA Financial, Inc. beneficially owns 52,669,044 shares of our common stock, ~~ownership is as~~with sole voting power for 38,027,229 shares, shared voting power for 4,288,975 shares, sole dispositive power for 52,643,476 shares and shared dispositive power for 25,568 shares; and (ii) AXA Financial, Inc. beneficially owns 52,550,491 shares of ~~December 31, 2002.~~our common stock, with sole voting power for 37,959,484 shares, shared voting power for 4,279,707 shares, sole dispositive power for 52,524,923 shares and shared dispositive power for 25,568 shares.


	Fees Earned or		Stock		Option		All Other
Name	Paid in Cash ($)		Awards ($)⁽¹⁾		Awards ($)⁽²⁾		Compensation ($)⁽³⁾		Total ($)

Stephen B. Ashley	$	500,000	$	64,770	$	17,516	$	16,689	$	598,975
Dennis R. Beresford		99,950		22,053		N/A		35,691		157,694
Kenneth M. Duberstein⁽⁴⁾		102,600		64,770		17,516		410,335		595,221
Brenda J. Gaines		35,667		5,845		N/A		17,818		59,330
Thomas P. Gerrity		110,533		64,770		17,516		15,821		208,640
Karen N. Horn		38,667		5,845		N/A		24,553		69,065
Ann M. Korologos		51,350		—		42,278		14,217		107,846
Bridget A. Macaskill		139,733		37,347		N/A		18,797		195,877
Donald B. Marron		45,917		—		42,278		53,396		141,591
Joe K. Pickett		122,533		64,770		17,516		36,052		240,871
Leslie Rahl		113,700		65,945		17,516		17,770		214,931
Greg C. Smith		166,467		33,058		2,483		17,818		219,826
H. Patrick Swygert		113,900		64,770		17,516		34,432		230,617
John K. Wulff		170,600		53,364		9,038		22,005		255,006


⁽¹⁾		These amounts represent the dollar amounts we recognized for financial statement reporting purposes with respect to 2006 for the fair value of restricted stock granted during 2006 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 value of the restricted stock awards is calculated as the average of the high and low trading price of our common stock on the date of grant. During 2006, three directors received restricted stock grants with the SFAS 123R grant date fair values shown upon joining our Board: Mr. Beresford, $36,033; Ms. Gaines, $26,162; and Ms. Horn, $26,162.

		Ms. Korologos and Mr. Marron each retired from our Board during 2006 and, as a result, forfeited shares of unvested restricted common stock. The amounts shown do not reflect the reversal of previously recognized compensation cost for the forfeited shares. The amounts shown also do not reflect the impact of Mr. Gerrity’s forfeiture of 650 shares of restricted stock upon his resignation from our Board of Directors in December 2006.

		As of December 31, 2006, our directors held the following number of shares of restricted stock: Mr. Ashley, Mr. Beresford, Mr. Duberstein, Ms. Macaskill, Mr. Pickett, Ms. Rahl, Mr. Smith, Mr. Swygert, and Mr. Wulff, 650 shares each; Ms. Gaines and Ms. Horn, 487 shares each; and Mr. Gerrity, Ms. Korologos, and Mr. Marron, 0 shares.

⁽²⁾		These amounts represent the dollar amounts we recognized for financial statement reporting purposes with respect to 2006 for the fair value of stock option awards granted during 2005 and in prior years in accordance with SFAS 123R. No director has received a stock option award since 2005. 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 onForm 10-K for the year ended December 31, 2006. Mr. Beresford, Ms. Gaines, Ms. Horn, and Ms. Macaskill have never been awarded Fannie Mae stock options.

		As of December 31, 2006, each of our directors held options to purchase the following number of shares of common stock, with exercise prices ranging from $42.69 to $79.22 per share and expiration dates ranging from 2007 to 2015: Mr. Ashley, 26,000 shares; Mr. Beresford, Ms. Gaines, Ms. Horn, and Ms. Macaskill, 0 shares; Mr. Duberstein and Mr. Gerrity, 28,000 shares; Mr. Marron, 4,000 shares; Mr. Pickett and Ms. Korologos, 32,000 shares; Ms. Rahl, 5,333 shares; Mr. Smith, 666 shares; Mr. Swygert, 11,833 shares; and Mr. Wulff, 2,000 shares.

⁽³⁾		“All Other Compensation” consists of our estimated incremental cost of providing Board members benefits under our Director’s Charitable Award Program, which is discussed in greater detail below. 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 2006 and (2) the time value during 2006 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 5.5%. For Mr. Duberstein, our estimated cost for providing this benefit is $35,335, and we have also included in “All Other Compensation” $375,000 we paid to The Duberstein Group for consulting services. This amount was paid to The Duberstein Group, not to Mr. Duberstein. Our transactions with The Duberstein Group are discussed more in “Corporate Governance—Certain Transactions and Relationships—Transactions with the Duberstein Group.” Amounts shown under “All Other Compensation” do not include gifts made by the Fannie Mae Foundation under its matching gifts program, under which gifts made by our employees and directors to 501(c)(3) charities are matched, up to an aggregate total of $10,500 in any calendar year. No amounts are included for this program because the matching gifts are made by the Fannie Mae Foundation, not Fannie Mae. In addition, no amounts are included for a furnished apartment we lease near our corporate offices in Washington, DC for use by Mr. Ashley, the non-executive Chairman of our Board, when he is in town on company business. Provided that he reimburses us, Mr. Ashley is permitted to use the apartment up to twelve nights per year when he is in town but not on company business.

⁽⁴⁾		Mr. Duberstein resigned from our Board in February 2007. Mr. Gerrity, Ms. Korologos and Mr. Marron each left our Board in 2006.


~~Jamie S. Gorelick~~Kenneth J. Bacon, ~~age 52, has been~~53		Executive Vice Chair of the Board of Fannie Mae since May 1997. Before joining Fannie Mae, Ms. Gorelick was Deputy Attorney General of the United States, beginning in 1994. She served as General Counsel of the United States Department of Defense from May 1993 to March 1994President—Housing and was a partner at Miller, Cassidy, Larroca & Lewin, a law firm, from January 1981 to April 1993. Ms. Gorelick also serves as a director of United Technologies Corporation and Schlumberger Limited. In addition, Ms. Gorelick is a member of the Harvard Board of Overseers. Ms. Gorelick has been a Fannie Mae director since 1997. As announced by Fannie Mae on January 10, 2003, Ms. Gorelick will leave Fannie Mae on June 30, 2003. Ms. Gorelick’s term as a director and Vice Chair of the Board will end as of the annual meeting. Community Development

~~Thomas E. Donilon,~~ age 47, has been Executive Vice President—Law and Policy and Secretary since May 2000. He served as Senior Vice President, General Counsel and Secretary from September 1999 to May 2000. Mr. Donilon was a partner with the law firm of O’Melveny & Myers from February 1991 to March 1993 and November 1996 to September 1999 when he joined		• Fannie ~~Mae. Mr. Donilon served as Assistant Secretary of State for Public Affairs and Chief of Staff to the Secretary of State from March 1993 to November 1996.~~ Mae

~~Louis W. Hoyes,~~ age 54, has been Executive Vice President—Single-Family Mortgage Business since May 2000. He served as Senior Vice President—Multifamily Lending and Investment from September 1995 to May 2000. Prior to his employment with Fannie Mae, Mr. Hoyes was a managing director of Citicorp Real Estate, holding various management positions over his 22-year career in their commercial real estate division and Latin American banking group. He also served as a Senior Credit Officer of Citibank, N.A., from 1982 until he joined Fannie Mae.

~~Robert J. Levin,~~ ~~age 47, has been~~• Executive Vice President—Housing and Community Development since ~~June 1998. He was Executive Vice President—Marketing from June 1990 to June 1998. He joined Fannie Mae in 1981.~~ July 2005

		• Interim Head of Housing and Community Development—January 2005 to July 2005

		• Senior Vice President—Multifamily Lending and Investment—May 2000 to January 2005

		• Senior Vice President—American Communities Fund—October 1999 to May 2000

		• Senior Vice President of the Community Development Capital Corporation—August 1998 to October 1999

		• Senior Vice President of Fannie Mae’s Northeastern Regional Office in Philadelphia—May 1993 to August 1998

		• Directorships: Fannie Mae Foundation since January 1995 (Vice Chairman since January 2005), Comcast Corporation, Corporation for Supportive Housing, and Maret School

		• Other Activities: Member of the Executive Leadership Council and the Real Estate Round Table

~~Adolfo Marzol,~~Robert T. Blakely ~~age 42, has been~~ , 65		Executive Vice ~~President—Finance and Credit~~President

		• Fannie Mae

		• Executive Vice President since ~~November 2002. He was~~January 2006

		• Executive Vice President and Chief ~~Credit~~Financial Officer—January 2006 to August 2007

		• MCI, Inc. (Executive Vice President, Chief Financial Officer ~~from June 1998~~and Chief Accounting Officer—April 2005 to ~~November 2002. He was Senior~~January 2006) and (Executive Vice ~~President—Single-Family Business Management from~~ President and Chief Financial Officer—April 2003 to April 2005)

		• President of Performance Enhancement Group, Inc., a business development services firm—July ~~1996~~2002 to ~~June 1998. He was Senior Vice President—Capital Markets from February 1996 to July 1996. Prior to his employment with Fannie Mae, Mr. Marzol was~~April 2003

		• Executive Vice President and Chief Financial Officer ~~from July 1993 to January 1996 and Senior Vice President—Interest Rate Risk from January 1991~~of Lyondell Chemical Company—November 1999 to June ~~1993 of Chase Manhattan Mortgage Corporation, a mortgage company.~~ 2002

		• Tenneco, Inc. (Executive Vice President from 1996 to November 1999) and (Chief Financial Officer from 1981 to November 1999)

		• Directorships: Financial Accounting Foundation (Trustee); Natural Resources Partners L.P.; and Westlake Chemicals Corporation


Enrico Dallavecchia, 45		Executive Vice President and Chief Risk Officer

		• Executive Vice President and Chief Risk Officer since June 2006

		• JP Morgan Chase (Head of Market Risk for Retail Financial Services, Chief Investment Office and Asset Wealth Management—April 2005 to May 2006) and (Market Risk Officer for Global Treasury, Retail Financial Services, Credit Cards and Proprietary Positioning Division and Co-head of Market Risk Technology—December 1998 to March 2005)

Linda K. Knight, 57		Executive Vice President—Enterprise Operations

		• Fannie Mae

		• Executive Vice President—Enterprise Operations since April 2007

		• Executive Vice President—Capital Markets—March 2006 to April 2007

		• Senior Vice President and Treasurer—February 1993 to March 2006

		• Vice President and Assistant Treasurer—November 1986 to February 1993

		• Director, Treasurer’s Office—November 1984 to November 1986

		• Assistant Director, Treasurer’s Office—February 1984 to November 1984

		• Senior Market Analyst—August 1982 to February 1984

Robert J. Levin,52		Executive Vice President and Chief Business Officer

		• Fannie Mae

		• Executive Vice President and Chief Business Officer since November 2005

		• Interim Chief Financial Officer—December 2004 to January 2006

		• Executive Vice President of Housing and Community Development—June 1998 to December 2004

		• Executive Vice President—Marketing—June 1990 to June 1998

		• Fannie Mae Foundation (previously served as director and treasurer).


Thomas A. Lund,48		Executive Vice President—Single-Family Mortgage Business

		• Fannie Mae

		• Executive Vice President—Single-Family Mortgage Business since July 2005

		• Interim head of Single-Family Mortgage Business—January 2005 to July 2005

		• Senior Vice President—Chief Acquisitions Office—January 2004 to January 2005

		• Senior Vice President—Investor Channel—August 2000 to January 2004

		• Senior Vice President—Southwestern Regional Office, Dallas, Texas—July 1996 to July 2000

		• Vice President for Marketing—January 1995 to July 1996

Rahul N. Merchant, 51		Executive Vice President and Chief Information Officer

		• Executive Vice President and Chief Information Officer since November 2006

		• Merrill Lynch & Co. (Head of Technology—2004 to 2006) and (Head of Global Business Technology, Global Markets and Investment Banking division—2000 to 2004)

		• Executive Vice President of Dresdner, Kleinwort and Benson—1998 to 2000

		• Previously served as Senior Vice President of Sanwa Financial Products and First Vice President of Lehman Brothers, Inc.

		• Other Activities: Board of Advisors of the American India Foundation

Peter S. Niculescu, ~~age 43, has been~~ 48		Executive Vice President—Capital Markets

		• Fannie Mae

		• Executive Vice President—Capital Markets (previously Mortgage ~~Portfolio Business~~Portfolio) since November ~~2002. He was~~2002

		• Senior Vice President—Portfolio ~~Strategy from~~ Strategy—March 1999 to November 2002. Prior to his employment with Fannie Mae, Mr. Niculescu was a Managing Director and Co-Head of Fixed Income Research for Goldman Sachs & Co. He joined Goldman Sachs in 1990 and held a variety of positions including Managing Director—Mortgage Research, Vice President—Mortgage Research, and Corporate Bond Strategist. 2002

William B. Senhauser,44		Senior Vice President and Chief Compliance Officer

		• Fannie Mae

		• Senior Vice President and Chief Compliance Officer since December 2005

		• Vice President for Regulatory Agreements and Restatement—October 2004 to December 2005

		• Vice President for Operating Initiatives—January 2003 to September 2004

		• Vice President, Deputy General Counsel—November 2000 to January 2003


Stephen M. Swad, 46		Executive Vice President and Chief Financial Officer

		• Fannie Mae

		• Executive Vice President and Chief Financial Officer since August 18, 2007

		• Executive Vice President and Chief Financial Officer Designate—May 2007 to August 17, 2007

		• Executive Vice President and Chief Financial Officer of AOL, LLC—February 2003 to February 2007

		• Executive Vice President of Finance and Administration of Turner Broadcasting System Inc.’s Turner Entertainment Group—April 2002 to February 2003

		• Various corporate finance roles at Time Warner—1998 through 2002

		• Previously served as a Partner of KPMG’s national office and Deputy Chief Accountant at the U.S. Securities and Exchange Commission

Beth A. Wilkinson,45		Executive Vice President—General Counsel and Corporate Secretary

		• Executive Vice President—General Counsel and Corporate Secretary since February 2006

		• Partner and Co-Chair, White Collar Practice Group at Latham & Watkins LLP—1998 to 2006

		• Department of Justice (prosecutor and special counsel forU.S. v. McVeigh and Nichols—1996 to 1998), (principal deputy of the Terrorism & Violent Crime Section—1995), and (Special Counsel to the Deputy Attorney General—1995 to 1996)

		• Assistant U.S. Attorney in the Eastern District of New York—1991 to 1995

		• Captain, U.S. Army (serving as an assistant to the general counsel of the Army for Intelligence & Special Operations)—1987 to 1991

		• Other Activities: Board of Directors of Equal Justice Works

Michael J. Williams, 50		Executive Vice President and Chief Operating Officer

		• Fannie Mae

		• Executive Vice President and Chief Operating Officer since November 2005

		• Executive Vice President for Regulatory Agreements and Restatement—February 2005 to November 2005

		• President—Fannie Mae eBusiness—July 2000 to February 2005

		• Senior VicePresident—e-commerce—July 1999 to July 2000

		• Various positions in Single-Family and Corporate Information Systems divisions—1991 to July 1999


•	Daniel Mudd, President and Chief Executive Officer

•	Robert Blakely, Executive Vice President (Chief Financial Officer—January 2006 to August 2007)

•	Robert Levin, Executive Vice President and Chief Business Officer (Interim Chief Financial Officer—December 2004 to January 2006)

•	Peter Niculescu, Executive Vice President—Capital Markets

•	Beth Wilkinson, Executive Vice President, General Counsel and Corporate Secretary

•	Michael Williams, Executive Vice President and Chief Operating Officer

•	Julie St. John, former Executive Vice President and Chief Information Officer


•	drive a “pay for performance” perspective that rewards company and individual performance, while supporting our mission to help more families achieve homeownership;

•	promote a long-term focus and align management’s and shareholders’ interests by providing a greater portion of compensation that is stock-based for more senior members of management;

•	foster compliance with legal and regulatory requirements; and

•	provide compensation that is straightforward and easy to understand.


Allstate	Countrywide	SunTrust Banks
American Express	Freddie Mac	U.S. Bancorp
American International Group	JP Morgan Chase	Wachovia
Bank of America	MetLife	Washington Mutual
Capital One	National City	Wells Fargo
Citigroup	Prudential


•	Salary is the basic cash compensation for the executive’s performance of his or her job responsibilities. It is intended to reflect the executive’s level of responsibility and individual performance over time.

•	Annual cash incentive bonuses reward executives based on a combination of corporate and individual performance during the year measured against pre-established corporate goals and individual goals designed to align with the corporate goals. We also use sign-on bonuses or guaranteed first-year bonus minimums from time to time to recruit executives with critical skills.

•	Long-term incentive awards are stock-based awards that vest over a period of years. For 2006 performance, these awards were delivered in the form of restricted stock or restricted stock units with a four-year vesting schedule. We believe that providing a significant portion of senior management compensation through long-term incentive awards based on our common stock and with a multi-year vesting schedule aligns the long-term interests of our senior management with those of our other shareholders, reinforcing a shared interest in company performance. Long-term incentive awards may also be used as sign-on bonuses to recruit executives.


•	Pension Benefits. Our named executives participate in our Executive Pension Plan. This plan is a nonqualified, defined benefit plan that supplements the pension benefits payable to the named executive


•	A named executive is not entitled to receive a pension benefit under the Executive Pension Plan until the executive 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. We consider the Executive Pension Plan an important component of our executives’ total compensation and believe requiring ten years of service as a participant before full vesting serves as a significant retention tool. Our Executive Pension Plan is discussed in more detail below under “Compensation Tables—Pension Benefits.”

•	Other Employee Benefits and Plans. In general, named executives are eligible for the employee benefits available to our employee population as a whole, including our medical insurance plans, our 401(k) plan, and our matching gifts program. Named executives also are eligible to participate in programs we make available only to management employees at varying levels, including our elective deferred compensation plan.

•	Severance benefits. Our Chief Executive Officer and our Chief Business Officer are entitled to receive severance benefits under agreements we entered into with them, dated November 15, 2005 and June 19, 1990, respectively. During 2006, our named executives other than Mr. Mudd were eligible to receive severance benefits under certain circumstances pursuant to a severance program no longer available to them. See “Compensation Tables-Potential Payments Upon Termination orChange-in-Control.”


						2006 Long-Term		Total of Base Salary,
	Base Salary as		2006 Bonus			Incentive Award		Bonus, and Long-Term
Named executive⁽²⁾	of 12/31/06		(Paid in 2007)			(Granted in 2007)⁽³⁾		Incentive Award

Daniel Mudd	$	950,000	$	3,500,000		$	9,999,947	$	14,449,947
Robert Blakely		650,000		1,290,575			3,299,361		5,239,936
Robert Levin		750,000		2,087,250			6,667,104		9,504,354
Peter Niculescu		539,977		1,029,060			2,839,945		4,408,982
Beth Wilkinson		575,000		1,947,988	⁽⁴⁾		2,770,316		5,293,304
Michael Williams		650,000		1,630,200			5,247,443		7,527,643