Freddie Mac 2009 Annual Report Download - page 237

Conservator or otherwise curtails the Conservator’s powers. Treasury may not terminate its funding commitment under the
Purchase Agreement solely by reason of our being in conservatorship, receivership or other insolvency proceeding, or due to
our financial condition or any adverse change in our financial condition.
Waivers and Amendments
The Purchase Agreement provides that most provisions of the agreement may be waived or amended by mutual written
agreement of the parties; however, no waiver or amendment of the agreement is permitted that would decrease Treasury’s
aggregate funding commitment or add conditions to Treasury’s funding commitment if the waiver or amendment would
adversely affect in any material respect the holders of our debt securities or Freddie Mac mortgage guarantee obligations.
Third-party Enforcement Rights
In the event of our default on payments with respect to our debt securities or Freddie Mac mortgage guarantee
obligations, if Treasury fails to perform its obligations under its funding commitment and if we and/or the Conservator are
not diligently pursuing remedies in respect of that failure, the holders of these debt securities or Freddie Mac mortgage
guarantee obligations may file a claim in the United States Court of Federal Claims for relief requiring Treasury to fund to
us the lesser of: (i) the amount necessary to cure the payment defaults on our debt and Freddie Mac mortgage guarantee
obligations; and (ii) the lesser of: (a) the deficiency amount; and (b) the maximum amount of the commitment less the
aggregate amount of funding previously provided under the commitment. Any payment that Treasury makes under those
circumstances will be treated for all purposes as a draw under the Purchase Agreement that will increase the liquidation
preference of the senior preferred stock.
Government Support for our Business
We are dependent upon the continued support of Treasury and FHFA in order to continue operating our business. We
also receive substantial support from the Federal Reserve. 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.
Significant recent developments with respect to the support we receive from the government include 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, it held $64.1 billion of our direct obligations and had net purchases
of $400.9 billion of our mortgage-related securities under this program as of February 10, 2010. In September 2009,
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 that they will be executed by the end of the first quarter of
2010. On November 4, 2009, the Federal Reserve announced that it was reducing the maximum amount of its
purchases of direct obligations of Freddie Mac, Fannie Mae and the FHLBs under this program to $175 billion;
• in September 2008, Treasury established a program to purchase mortgage-related securities issued by us and Fannie
Mae. This program expired on December 31, 2009. According to information provided by Treasury, it held
$197.6 billion of mortgage-related securities issued by us and Fannie Mae as of December 31, 2009 previously
purchased under this program; 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. We did not make any borrowings under the Lending Agreement.
We had positive net worth at December 31, 2009 as our assets exceeded our liabilities by $4.4 billion. Therefore, we
did not require additional funding from Treasury under the Purchase Agreement. However, we expect to make additional
draws under the Purchase Agreement in future periods due to a variety of factors that could adversely affect our net worth.
Based on the current aggregate liquidation preference of the senior preferred stock, Treasury is entitled to annual cash
dividends of $5.2 billion, which exceeds our annual historical earnings in most periods. Continued cash payment of senior
preferred dividends combined with potentially substantial quarterly commitment fees payable to Treasury beginning in 2011
(the amounts of which must be determined by December 31, 2010) will have an adverse impact on our future financial
condition and net worth. As a result of additional draws and other factors: (a) the liquidation preference of, and the
dividends we owe on, the senior preferred stock would increase and, therefore, we may need additional draws from Treasury
in order to pay our dividend obligations; (b) there is significant uncertainty as to our long-term financial sustainability; and
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