Freddie Mac 2009 Annual Report Download - page 136

Our cash and cash equivalents increased $36.8 billion to $45.3 billion during 2008. Cash flows used for operating
activities during 2008 were $10.1 billion, which primarily reflected a reduction in cash as a result of a net increase in
held-for-sale mortgage loans. Cash flows used for investing activities during 2008 were $71.4 billion, primarily resulting
from purchases of trading securities and available-for-sale securities, partially offset by proceeds from maturities of
available-for-sale securities and sales of trading securities. Cash flows provided by financing activities in 2008 were
$118.3 billion, largely attributable to proceeds from the issuance of debt securities, net of repayments.
Our cash and cash equivalents decreased $2.8 billion to $8.6 billion during 2007. Cash flows used for operating
activities in 2007 were $7.7 billion, which reflected a reduction in cash primarily from a decrease in liabilities to PC
investors as a result of a change in our PC issuance process to the use of securitization trusts, partially offset by net interest
income, management and guarantee fees and changes in other operating assets and liabilities. Cash flows provided by
investing activities in 2007 were $9.8 billion, primarily due to a net increase in cash flows as we reduced our balance of
federal funds sold and eurodollars, partially offset by an increase in cash used to purchase held-for-investment mortgage
loans. Cash flows used for financing activities in 2007 were $4.9 billion, which primarily resulted from a decrease in debt
securities, net, preferred and common stock repurchases and dividends paid, partially offset by proceeds from the issuance of
preferred stock.
Capital Resources
Our entry into conservatorship resulted in significant changes to the assessment of our capital adequacy and our
management of capital. FHFA suspended the capital classification of us during conservatorship in light of the Purchase
Agreement. The Purchase Agreement provides that, if FHFA determines as of quarter end that our liabilities have exceeded
our assets under GAAP, Treasury will contribute funds to us in an amount equal to the difference between such liabilities
and assets; a higher amount may be drawn if Treasury and Freddie Mac mutually agree that the draw should be increased
beyond the level by which liabilities exceed assets under GAAP. In each case, the amount of the draw cannot exceed the
maximum aggregate amount that may be funded under the Purchase Agreement. Under the Purchase Agreement, Treasury
made a commitment to provide us with 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.
FHFA continues to closely monitor our capital levels, but the existing statutory and FHFA-directed regulatory capital
requirements are not binding during conservatorship. We continue to provide regular submissions to FHFA on both minimum
and risk-based capital. Additionally, FHFA announced that it will engage in rule-making to revise our minimum capital and
risk-based capital requirements. See “NOTE 11: REGULATORY CAPITAL” to our consolidated financial statements for our
minimum capital requirement, core capital and GAAP net worth results as of December 31, 2009.
We are focusing our risk and capital management, consistent with the objectives of conservatorship, on, among other
things, maintaining a positive balance of GAAP equity in order to reduce the likelihood that we will need to make additional
draws on the Purchase Agreement with Treasury, while returning to long-term profitability. Our business objectives and
strategies have in some cases been altered since we were placed into conservatorship, and may continue to change. Certain
changes to our business objectives and strategies are designed to provide support for the mortgage market in a manner that
serves public policy and other non-financial objectives. In this regard, we are focused on serving our mission, helping
families keep their homes and stabilizing the economy by playing a vital role in the Obama Administration’s housing
programs. However, these changes to our business objectives and strategies may conflict with maintaining positive GAAP
equity (deficit). In addition, notwithstanding our failure to maintain required capital levels, FHFA directed us to continue to
make interest and principal payments on our subordinated debt. For more information, see “BUSINESS — Regulation and
Supervision — Federal Housing Finance Agency — Subordinated Debt.”
Under the Reform Act, FHFA must place us into receivership if FHFA determines in writing that our assets are and
have been less than our obligations for a period of 60 days. Obtaining funding from Treasury pursuant to its commitment
under the Purchase Agreement enables us to avoid being placed into receivership by FHFA. At December 31, 2009, our
assets exceeded our liabilities by $4.4 billion; therefore, FHFA did not submit a draw request on our behalf to Treasury
under the Purchase Agreement. As of December 31, 2009, the aggregate liquidation preference of the senior preferred stock
was $51.7 billion. See “BUSINESS — Regulation and Supervision — Federal Housing Finance Agency — Receivership” for
additional information on mandatory receivership.
We expect to make additional draws under the Purchase Agreement in future periods. The size and timing of such
draws will be determined by a variety of factors that could affect our net worth, including how long and to what extent the
housing market will continue to deteriorate, which could increase credit expenses and cause additional other-than-temporary
impairments of our non-agency mortgage-related securities; the introduction of additional public mission-related initiatives
that may adversely impact our financial results; adverse changes in interest rates, the yield curve, implied volatility or
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