Freddie Mac 2009 Annual Report Download - page 132

In addition, in September 2008, FHFA, as Conservator, advised us of FHFA’s determination that no further common or
preferred stock dividends should be paid by our REIT subsidiaries, Home Ownership Funding Corporation and Home
Ownership Funding Corporation II until directed otherwise. For more information, see “NOTE 20: NONCONTROLLING
INTERESTS” to our consolidated financial statements.
The Reform Act requires us to set aside in each fiscal year, an amount equal to 4.2 basis points for each dollar of the
unpaid principal balance of total new business purchases, and allocate or transfer such amount (i) to HUD to fund a Housing
Trust Fund established and managed by HUD and (ii) to a Capital Magnet Fund established and managed by Treasury.
FHFA has the authority to suspend our allocation upon finding that the payment would contribute to our financial instability,
cause us to be classified as undercapitalized or prevent us from successfully completing a capital restoration plan. In
November 2008, FHFA advised us that it has suspended the requirement to set aside or allocate funds for the Housing
Trust Fund and the Capital Magnet Fund until further notice.
For more information on these actions, see “BUSINESS — Conservatorship and Related Developments” and
“— Regulation and Supervision.”
Debt Securities
We fund our business activities primarily through the issuance of short- and long-term debt. Competition for funding
can vary with economic, financial market and regulatory environments. Historically, we have mainly competed for funds in
the debt issuance markets with Fannie Mae and the FHLBs. We repurchase or call our outstanding debt securities from time
to time to help support the liquidity and predictability of the market for our debt securities and to manage our mix of
liabilities funding our assets.
To fund our business activities, we depend on the continuing willingness of investors to purchase our debt securities.
Changes or perceived changes in the government’s support of us could have a severe negative effect on our access to the
debt markets and on our debt funding costs. In addition, any change in applicable legislative or regulatory exemptions,
including those described in “BUSINESS — Regulation and Supervision,” could adversely affect our access to some debt
investors, thereby potentially increasing our debt funding costs.
Our access to the debt markets has improved since the height of the credit crisis in the fall of 2008. We attribute this
improvement to the conservatorship and resulting support we receive from Treasury and the Federal Reserve. Since that
time, Treasury and the Federal Reserve have taken a number of actions that have contributed to this improvement in our
access to debt financing, as noted above in “Actions of Treasury, the Federal Reserve and FHFA.” In particular, during 2009,
the Federal Reserve was an active purchaser in the secondary market of our long-term debt under its purchase program and,
as a result, spreads on our debt remained favorable.
As discussed above, while we believe that the increased support provided by Treasury pursuant to the December 2009
amendment to the Purchase Agreement, will be sufficient to enable us to maintain our access to the debt markets and ensure
that we have adequate liquidity to conduct our normal business activities over the next three years, the costs of our debt
funding could vary. The completion of the Federal Reserve’s debt purchase program could negatively affect the availability
of longer-term debt funding as well as the spreads on our debt, and thus increase our debt funding costs. See “RISK
FACTORS — Competitive and Market Risks — Our business may be adversely affected by limited availability of financing,
increased funding costs and uncertainty in our securitization financing” for a discussion of the risks to our business posed by
our reliance on the issuance of debt to fund our operations.
During the fall of 2008 and the beginning of 2009, our ability to access both the term and callable debt markets was
limited, and we relied on short-term debt to fund our purchases of mortgage assets and to refinance maturing debt. Since that
time, we have been able to reduce our use of short-term debt by issuing long-term and callable debt. Our short-term debt
declined from 52% of outstanding debt on December 31, 2008 to 44% on December 31, 2009.
Under the Purchase Agreement, without the prior written consent of Treasury, we may not incur indebtedness that
would result in the par value of our aggregate indebtedness exceeding:
• through and including December 30, 2010, 120% of the amount of mortgage assets we are permitted to own under
the Purchase Agreement on December 31, 2009; and
• beginning on December 31, 2010, and through and including December 30, 2011, and each year thereafter, 120% of
the amount of mortgage assets we are permitted to own under the Purchase Agreement on December 31 of the
immediately preceding calendar year.
Under the Purchase Agreement, the amount of our “indebtedness” is determined without giving effect to any change in
the accounting standards related to transfers of financial assets and consolidation of VIEs or any similar accounting standard.
We also cannot become liable for any subordinated indebtedness without the prior written consent of Treasury.
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