Fannie Mae Offers New Standard 5/1 Adjustable-Rate Mortgage —ARM— Mortgage-Backed Security Pooling Option; Designed to Enhance Uniformity and Liquidity in the ARM Market

Business Wire, April 7, 2003

Business Editors

NEW YORK--(BUSINESS WIRE)--April 7, 2003

In support of its mission to increase efficiency in the secondary mortgage market and increase the affordability of homeownership for Americans, Fannie Mae (FNM/NYSE), the nation's largest source of financing for home mortgages, today announced a new standard mortgage backed security (MBS) pooling option for conventional hybrid adjustable-rate mortgages (ARMs).

The announcement was made at the Mortgage Bankers Association National Secondary Market conference held in New York City.

Effective for pool issue dates on or after May 1, 2003, Fannie Mae will offer the new pooling option for 5/1 ARMs - known as hybrid ARMs because they have a fixed interest rate for a set number of years and adjust annually thereafter - to help provide lenders and securities dealers increased standardization in the secondary market for ARM securities, which is designed to promote a more liquid execution.

Establishing a uniform pooling standard with common pool-level characteristics could result in greater conformity and liquidity - which can bring value to all participants in the secondary market.

"We developed this pooling option in response to requests from lenders and investors to create greater liquidity for hybrid ARM products. We hope the standardized criteria of this 5/1 ARM pooling option will facilitate the formation of larger, more liquid ARM MBS pools," said Denise Grant, Fannie Mae's vice president of mortgage-backed securities.

These uniform standards for the 5/1 ARM market could provide a number of benefits for market participants, including:

-- More accurate and consistent pricing;

-- Reduced borrowing costs for consumers;

-- Lets originators hedge their pipelines more effectively;

-- Creates a deeper market in which to sell securities; and

-- Facilitates efficient execution of lender trading strategies.

Fannie Mae's 5/1 ARM is indexed to the one-year Wall Street Journal London Interbank Offered Rate (LIBOR).

Rate increases are capped at 5 percent, 2 percent, and 5 percent, meaning interest rates to consumers can increase or decrease by no more than five percentage points at the initial adjustment date, no more than two percentage points at any annual adjustment period, and can increase by no more than five percentage points over the life of the loan.

The volume of ARMs originated in the primary market has grown steadily in recent years, and 5/1 ARMs account for the largest share of ARM originations. Conventional conforming hybrid ARM originations in 2002 totaled approximately $175 billion, and about half of those purchases were 5/1 ARMs.

The historically low interest rates of recent years have fueled refinances, and many borrowers are choosing ARMs because they can obtain a mortgage interest rate that is a full percentage point or more below fixed rate mortgage options. Due to the increase in ARM originations, lenders are becoming more interested in putting this product into MBS.

Grant added that although there has been substantial innovation on the origination side of the ARM market, the security side has remained largely static. The parameters of hybrid ARMs currently vary so much that the hybrid ARM market is pool-specific, and lacks the uniformity required to create liquidity needed to attract and sustain investor interest.

For more information on the new 5/1 ARM MBS pooling option, visit www.efanniemae.com.

Fannie Mae is a New York Stock Exchange company and the largest non-bank financial services company in the world. It operates pursuant to a federal charter and is the nation's largest source of financing for home mortgages.

Fannie Mae is working to shrink the nation's "homeownership gaps" through a $2 trillion "American Dream Commitment" to increase homeownership rates and serve 18 million targeted American families by the end of the decade. Since 1968, Fannie Mae has provided $4.5 trillion of mortgage financing for more than 49 million families.

More information about Fannie Mae can be found on the Internet at http://www.fanniemae.com.

Style Usage: Fannie Mae's Board of Directors has authorized the company to operate as "Fannie Mae," and the company's stock is now listed on the NYSE as "FNM." In order to facilitate clarity and avoid confusion, news organizations are asked to refer to the company exclusively as "Fannie Mae."