Freddie Mac 2009 Annual Report Download - page 137

mortgage-to-debt OAS, which could increase realized and unrealized mark-to-fair value losses recorded in earnings or AOCI;
increased dividend obligations on the senior preferred stock; quarterly commitment fees payable to Treasury beginning in
2011; our inability to access the public debt markets on terms sufficient for our needs, absent continued support from
Treasury and the Federal Reserve; establishment of additional valuation allowances for our remaining deferred tax asset, net;
changes in accounting practices or standards, including the implementation of the amendments to the accounting standards
for transfers of financial assets and consolidation of VIEs (as discussed below); the effect of the MHA Program and other
government initiatives; or changes in business practices resulting from legislative and regulatory developments, such as the
enactment of legislation providing bankruptcy judges with the authority to revise the terms of a mortgage, including the
principal amount. The factors described above may make it more difficult for us to maintain a positive level of total equity.
To the extent that the above factors result in a negative net worth, we would be required to make additional draws from
Treasury under the Purchase Agreement. Payment of our dividend obligations in cash could contribute to the need for
additional draws from Treasury and further draws from Treasury under the Purchase Agreement would increase the
liquidation preference of and the dividends we owe on, the senior preferred stock.
For more information on the Purchase Agreement, its effect on our business and capital management activities, and the
potential impact of making additional draws, see “Liquidity — Dividend Obligation on the Senior Preferred Stock,”
“EXECUTIVE SUMMARY — Liquidity and Capital Resources” and “RISK FACTORS.”
As previously discussed, due to the implementation of changes to the accounting standards for transfers of financial
assets and consolidation of VIEs, we recognized a decrease of approximately $11.7 billion to total equity (deficit) on
January 1, 2010, which will increase the likelihood that we will require a draw from Treasury under the Purchase Agreement
for the first quarter of 2010. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Recently Issued
Accounting Standards, Not Yet Adopted Within These Consolidated Financial Statements” to our financial statements for
additional information regarding our implementation of these changes. For a discussion of our regulatory minimum capital
subsequent to our adoption of these accounting standards see “NOTE 11: REGULATORY CAPITAL” to our consolidated
financial statements.
MHA PROGRAM AND OTHER EFFORTS TO ASSIST THE U.S. HOUSING MARKET
On February 18, 2009, the Obama Administration announced the MHA Program, which includes HAMP and the Home
Affordable Refinance Program as its key initiatives. The MHA Program is designed to help in the housing recovery, promote
liquidity and housing affordability, expand foreclosure prevention efforts and set market standards. Participation in the MHA
Program is an integral part of our mission of providing stability to the housing market. Through our participation in this
program, we help families maintain home ownership and help maintain the stability of communities.
Home Affordable Modification Program. HAMP commits U.S. government, Freddie Mac and Fannie Mae funds to
help eligible homeowners avoid foreclosures and keep their homes through mortgage modifications, where possible. Under
this program, we offer loan modifications to financially struggling homeowners with mortgages on their primary residences
that reduce the monthly principal and interest payments on their mortgages. HAMP applies both to delinquent borrowers and
to those current borrowers at risk of imminent default. Other features of HAMP include the following:
• HAMP uses specified requirements for borrower eligibility. The program seeks to provide a uniform, consistent
regime that all participating servicers must use in modifying loans held or guaranteed by all types of investors:
Freddie Mac, Fannie Mae, banks and trusts backing non-agency mortgage-related securities.
• Under HAMP, the goal is to reduce the borrowers’ monthly mortgage payments to 31% of gross monthly income,
which may be achieved through a combination of methods, including interest rate reductions, term extensions and
principal forbearance. Although HAMP contemplates that some servicers will also make use of principal reduction to
achieve reduced payments for borrowers, we only used forbearance in 2009 and did not use principal reduction in
modifying our loans.
• Under HAMP, each modification must be preceded by a standardized net present value, or NPV, test to evaluate
whether the NPV of the income that the mortgage holder will receive after the modification will equal or exceed the
NPV of the income that the holder would have received had there been no modification. HAMP does not require a
modification if the NPV of the income that the mortgage holder will receive after modification is less than the NPV of
the income the holder would have received had there been no modification; however, Freddie Mac will permit such a
modification in certain circumstances. Our practice in this regard is intended to increase the number of modifications
under the program; however, it may cause us to incur higher losses than would otherwise be recognized under HAMP.
• HAMP requires that each borrower complete a trial period during which the borrower will make monthly payments
based on the estimated amount of the modification payments. Trial periods are required for at least three months.
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