Freddie Mac 2004 Annual Report Download - page 24

New Program Approval
Under the GSE Act, we must obtain the approval of the Secretary of HUD for any new program for the
purchasing, servicing, selling, lending on the security of or otherwise dealing in conventional mortgages that:
‚ is signiÑcantly diÅerent from programs that were previously approved under the GSE Act or that
were approved or engaged in before the date the GSE Act was enacted; or
‚ represents an expansion, of the dollar volume or number of mortgages or securities involved, of
programs above limits expressly contained in any prior approval.
HUD has issued regulations implementing the new program approval authority granted under the GSE
Act. The Secretary of HUD is required to approve any new program unless the Secretary determines that the
new program is not authorized under the Freddie Mac Act or that the program is not in the public interest.
OFHEO
Regulation of our Ñnancial safety and soundness is vested in OFHEO. Organizationally, OFHEO is
located within HUD; however, it operates independently of the Secretary of HUD in most respects. Among
other regulations relating to safety and soundness, OFHEO implements, monitors, and enforces capital
standards that apply to us. In addition, OFHEO conducts comprehensive examinations of our operations.
OFHEO's regulatory capital requirements include a ratio-based minimum capital requirement and a risk-
based capital requirement designed to ensure that we maintain suÇcient capital to survive a sustained severe
downturn in the economic environment. OFHEO is required to classify our capital adequacy at least quarterly.
OFHEO has never classiÑed us as other than ""adequately capitalized,'' the highest possible classiÑcation.
If we were classiÑed as less than adequately capitalized, our ability to pay dividends on common or
preferred stock could be restricted. Also, without prior written approval from OFHEO, we may not make any
dividend payment on common or preferred stock if, after paying such dividend, we would fail to meet our
minimum capital or risk-based capital requirements. For additional information about our regulatory capital
requirements, see ""NOTE 10: REGULATORY CAPITAL'' to the consolidated Ñnancial statements.
On January 29, 2004, OFHEO announced the creation of a framework for monitoring our capital due to
the temporarily higher operational risks arising from our current inability to produce timely Ñnancial
statements in accordance with GAAP. The framework includes a target capital surplus of 30 percent of our
minimum capital requirement, subject to certain conditions and variations; weekly monitoring; and prior
approval of certain capital transactions, to verify that appropriate levels of capital are maintained. While
OFHEO's framework includes weekly monitoring and imposes restrictions on share repurchases and other
capital activities, we do not expect it to adversely aÅect our ability to grow in most scenarios. For additional
information about the OFHEO target capital surplus framework, see ""NOTE 10: REGULATORY CAPI-
TAL'' to the consolidated Ñnancial statements.
Treasury
Under the Freddie Mac Act, the Secretary of the Treasury has approval authority over all of our
issuances of notes, debentures and substantially identical types of unsecured debt obligations (including the
interest rates and maturities on these securities), as well as new types of mortgage-related securities issued
subsequent to the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989.
The Secretary of the Treasury has historically performed this debt securities approval function by coordinating
GSE debt oÅerings with Treasury funding activities.
SEC
While we are exempt from the Securities Act and Exchange Act securities registration requirements, we
are dedicated to fulÑlling our commitment to register our common stock under the Exchange Act. Once this
process is complete, we will be subject to the Ñnancial reporting requirements applicable to registrants under
the Exchange Act, including Ñling with the SEC annual reports on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K. We anticipate Ñling our Exchange Act registration statement
with the SEC in the second quarter of 2006 and becoming an SEC reporting company as soon as possible
thereafter.
Freddie Mac
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