Freddie Mac 2009 Annual Report Download - page 20

Conservatorship and Related Developments
On September 7, 2008, the then Secretary of the Treasury and the then Director of FHFA announced several actions
taken by Treasury and FHFA regarding Freddie Mac and Fannie Mae. At that time, FHFA set forth the purpose and goals of
the conservatorship as follows: “The purpose of appointing the Conservator is to preserve and conserve the company’s assets
and property and to put the company in a sound and solvent condition. The goals of the conservatorship are to help restore
confidence in Fannie Mae and Freddie Mac, enhance their capacity to fulfill their mission, and mitigate the systemic risk that
has contributed directly to the instability in the current market.” These actions included the following:
• placing us and Fannie Mae in conservatorship;
• the execution of the Purchase Agreement, pursuant to which we issued to Treasury both senior preferred stock and a
warrant to purchase common stock; and
• the establishment of a temporary secured lending credit facility that was available to us until December 31, 2009,
which was effected through the execution of the Lending Agreement.
We refer to the Purchase Agreement, the warrant, and the Lending Agreement as the “Treasury Agreements.”
Entry Into Conservatorship
Upon its appointment, FHFA, as Conservator, immediately succeeded to all rights, titles, powers and privileges of
Freddie Mac, and of any stockholder, officer or director of Freddie Mac with respect to Freddie Mac and its assets, and
succeeded to the title to all books, records and assets of Freddie Mac held by any other legal custodian or third party. During
the conservatorship, the Conservator delegated certain authority to the Board of Directors to oversee, and management to
conduct, day-to-day operations so that the company can continue to operate in the ordinary course of business. We describe
the terms of the conservatorship and the powers of our Conservator in detail below under “Supervision of our Business
During Conservatorship” and “Powers of the Conservator.”
There is significant uncertainty as to whether or when we will emerge from conservatorship, as it has no specified
termination date, and as to what changes may occur to our business structure during or following our conservatorship,
including whether we will continue to exist. However, we are not aware of any immediate plans of our Conservator to
significantly change our business structure in the near-term.
We receive substantial support from Treasury, FHFA as our Conservator and regulator and the Federal Reserve. We are
dependent upon the continued support of Treasury and FHFA in order to continue operating our business. Our ability to
access funds from Treasury under the Purchase Agreement is critical to keeping us solvent and avoiding the appointment of a
receiver by FHFA under statutory mandatory receivership provisions.
Impact of Conservatorship and Related Actions on Our Business
Our business objectives and strategies have in some cases been altered since we were placed into conservatorship, and
may continue to change. Based on our charter, public statements from Treasury and FHFA officials and guidance from our
Conservator, we have a variety of different, and potentially competing, objectives, including:
• providing liquidity, stability and affordability in the mortgage market;
• continuing to provide additional assistance to the struggling housing and mortgage markets;
• reducing the need to draw funds from Treasury pursuant to the Purchase Agreement;
• returning to long-term profitability; and
• protecting the interests of the taxpayers.
These objectives create conflicts in strategic and day-to-day decision making that will likely lead to suboptimal
outcomes for one or more, or possibly all, of these objectives. We regularly receive direction from our Conservator on how
to pursue these objectives. Given the important role the Obama Administration and our Conservator have placed on Freddie
Mac in addressing housing and mortgage market conditions and our public mission, we may be required to take additional
actions that could have a negative impact on our business, operating results or financial condition. In a letter to the Chairmen
and Ranking Members of the Congressional Banking and Financial Services Committees dated February 2, 2010, the Acting
Director of FHFA stated that minimizing our credit losses is our central goal and that we will be limited to continuing our
existing core business activities and taking actions necessary to advance the goals of the conservatorship. The Acting
Director stated that FHFA does not expect we will be a substantial buyer or seller of mortgages for our mortgage-related
investments portfolio, except for purchases of delinquent mortgages out of PC pools. The Acting Director also stated that
permitting us to engage in new products is inconsistent with the goals of the conservatorship. This could limit our ability to
return to profitability in future periods. For more information on our current business objectives and the effect of
conservatorship on our business and our public mission, see “MD&A — EXECUTIVE SUMMARY — Business Objectives.”
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