Freddie Mac 2009 Annual Report Download - page 131

liquidation preference of the senior preferred stock is limited and we will not be able to do so for the foreseeable future, if at
all.
Given the potential for continued deterioration in the housing market and future net losses in accordance with GAAP, as
well as the implementation of changes to the accounting standards for transfers of financial assets and consolidation of VIEs,
we expect to make additional draws under the Purchase Agreement in future periods.
Actions of Treasury, the Federal Reserve and FHFA
Since our entry into conservatorship, Treasury, the Federal Reserve and FHFA have taken a number of actions that
affect our cash requirements and ability to fund those requirements. The conservatorship, and the resulting support we
received from Treasury and the Federal Reserve to date has enabled us to access debt funding on terms sufficient for our
needs. The support from Treasury and the Federal Reserve has included the following:
• under the Purchase Agreement, Treasury made a commitment to provide funding, under certain conditions, to
eliminate deficits in our net worth. The Purchase Agreement provides that the $200 billion cap on Treasury’s funding
commitment will increase as necessary to accommodate any cumulative reduction in our net worth during 2010, 2011
and 2012. To date, we have received an aggregate of $50.7 billion in funding under the Purchase Agreement;
• in November 2008, the Federal Reserve established a program to purchase (i) our direct obligations and those of
Fannie Mae and the FHLBs and (ii) mortgage-related securities issued by us, Fannie Mae and Ginnie Mae. According
to information provided by the Federal Reserve, as of February 10, 2010 it had net purchases of $400.9 billion of our
mortgage-related securities and held $64.1 billion of our direct obligations. The Federal Reserve announced that it
would gradually slow the pace of purchases under the program in order to promote a smooth transition in markets and
anticipates its purchases under this program will be completed by the end of the first quarter of 2010;
• in September 2008, Treasury established a program to purchase mortgage-related securities issued by us and Fannie
Mae. According to information provided by Treasury, as of December 31, 2009 it held $197.6 billion of mortgage-
related securities issued by us and Fannie Mae. This program expired on December 31, 2009; and
• in September 2008, we entered into the Lending Agreement with Treasury, pursuant to which Treasury established a
secured lending credit facility that was available to us as a liquidity back-stop. The Lending Agreement expired on
December 31, 2009, and we did not make any borrowings under it. Accordingly, we currently have no liquidity back-
stop, other than draws from Treasury under the Purchase Agreement and Treasury’s ability to purchase up to
$2.25 billion of our obligations under its permanent statutory authority.
We do not believe we experienced any adverse effect on our business from the expiration of Treasury’s mortgage-
related securities purchase program. It is difficult at this time to predict the impact that the completion of the Federal
Reserve’s mortgage-related securities purchase program will have on our business and the U.S. mortgage market. It is
possible that interest-rate spreads on mortgage-related securities could widen, which could result in additional unrealized
losses on our available-for-sale securities. This, in turn, could negatively affect our net worth, and thus contribute to the need
to make additional draws under the Purchase Agreement. The completion of this program could also result in less demand
for our PCs in the market, and negatively affect the relative price performance of our PCs versus comparable Fannie Mae
securities. We purchase many of our new single-family mortgages by swapping PCs for the mortgages. Therefore, a decline
in our relative price performance could adversely affect our competitiveness in purchasing new single-family mortgages from
our lender customers, and thus negatively impact the relative profitability of new single-family business.
If spreads on mortgage-related securities widen, we could experience more favorable investment opportunities following
the completion of the Federal Reserve’s mortgage-related securities purchase program. However, we may be limited in our
ability to take advantage of any such opportunities in future periods because, beginning in 2010, we must reduce our
mortgage-related investments portfolio by 10% each year until it reaches $250 billion. The unpaid principal balance of our
mortgage-related investments portfolio, for purposes of the limit imposed by the Purchase Agreement and FHFA regulation,
was $755.3 billion at December 31, 2009, and may not exceed $810 billion as of December 31, 2010. Treasury has stated it
does not expect us to be an active buyer to increase the size of our mortgage-related investments portfolio, and also does not
expect that active selling will be necessary to meet the required portfolio reduction targets. FHFA has also stated its
expectation in the Acting Director’s February 2, 2010 letter that we will not be a substantial buyer or seller of mortgages for
our mortgage-related investments portfolio, except for purchases of delinquent mortgages out of PC pools.
We discuss the potential impact on our funding sources of the completion of the Federal Reserve’s debt purchase
program below under “Debt Securities.” We do not believe we experienced any adverse impacts on our access to the debt
markets from the expiration of the Lending Agreement.
In September 2008, in an effort to conserve capital, FHFA, as Conservator, eliminated dividends on Freddie Mac
common stock and preferred stock, excluding the senior preferred stock issued to Treasury under the Purchase Agreement.
128 Freddie Mac