Freddie Mac 2009 Annual Report Download - page 29

exercise. Until Treasury exercises its rights under the warrant or its right to exercise the warrant expires on
September 7, 2028 without having been exercised, the holders of our common stock continue to have the risk that, as
a group, they will own no more than 20.1% of the total voting power of the company. Under our charter, bylaws and
applicable law, 20.1% is insufficient to control the outcome of any vote that is presented to the common stockholders.
Accordingly, existing common stockholders have no assurance that, as a group, they will be able to control the
election of our directors or the outcome of any other vote after the time, if any, that the conservatorship ends.
As described above, the conservatorship and Treasury agreements also impact our business in ways that indirectly affect
our common and preferred stockholders. By their terms, the Purchase Agreement, senior preferred stock and warrant will
continue to exist even if we are released from the conservatorship. For a description of the risks to our business relating to
the conservatorship and Treasury Agreements, see “RISK FACTORS.”
Treasury Mortgage-Related Securities Purchase Program
On September 7, 2008, Treasury announced a program to purchase GSE mortgage-related securities in the open market.
This program expired on December 31, 2009. As of December 31, 2009, according to information provided by Treasury, it
held $197.6 billion of GSE mortgage-related securities previously purchased under this program.
Federal Reserve Debt and Mortgage-Related Securities Purchase Program
On November 25, 2008, the Federal Reserve announced a program to purchase up to $100 billion (subsequently
increased to $200 billion) of direct obligations of Freddie Mac, Fannie Mae and the FHLBs, and up to $500 billion
(subsequently increased to $1.25 trillion) of mortgage-related securities issued by Freddie Mac, Fannie Mae and Ginnie Mae.
According to the Federal Reserve, the goal of this program is to reduce the cost and increase the availability of credit for the
purchase of houses, which, in turn, should support housing markets and foster improved conditions in financial markets more
generally. According to the Federal Reserve, its purchases of direct obligations of Freddie Mac, Fannie Mae and the FHLBs
are intended to reduce the interest rate spreads between these direct obligations and debt issued by Treasury. The Federal
Reserve is purchasing these direct obligations and mortgage-related securities from primary dealers. The Federal Reserve
began purchasing direct obligations and mortgage-related securities under the program in December 2008 and January 2009,
respectively. On September 23, 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 its purchases under this program
will be completed 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. As of February 10, 2010, according to information provided by the Federal Reserve, it held
$64.1 billion of our direct obligations and purchased $400.9 billion of our mortgage-related securities under this program.
Regulation and Supervision
We experienced a number of significant changes in our regulatory and supervisory environment as a result of the
enactment of the Reform Act, which was signed into law on July 30, 2008 as part of The Housing and Economic Recovery
Act of 2008, as well as our entry into conservatorship. The Reform Act consolidated regulation of Freddie Mac, Fannie Mae
and the FHLBs into a single regulator, FHFA.
Federal Housing Finance Agency
FHFA is an independent agency of the federal government responsible for oversight of the operations of Freddie Mac,
Fannie Mae and the FHLBs. FHFA has a Director appointed by the President and confirmed by the Senate for a five-year
term, removable only for cause. In the discussion below, we refer to Freddie Mac and Fannie Mae as the “enterprises.”
The Reform Act established the Federal Housing Finance Oversight Board, or the Oversight Board, which is responsible
for advising the Director of FHFA with respect to overall strategies and policies. The Oversight Board consists of the
Director of FHFA as Chairperson, the Secretary of the Treasury, the Chair of the SEC and the Secretary of HUD.
The Reform Act provided FHFA with new safety and soundness authority that is comparable to, and in some respects,
broader than that of the federal banking agencies. The Reform Act also gave FHFA enhanced powers that, even if we were
not placed into conservatorship, include the authority to raise capital levels above statutory minimum levels, regulate the size
and content of our mortgage-related investments portfolio, and approve new mortgage products.
FHFA is responsible for implementing the various provisions of the Reform Act. In general, we remain subject to
existing regulations, orders and determinations until new ones are issued or made.
Receivership
Under the Reform Act, FHFA must place us into receivership if FHFA determines in writing that our assets are less than
our obligations for a period of 60 days. FHFA has notified us that the measurement period for any mandatory receivership
determination with respect to our assets and obligations would commence no earlier than the SEC public filing deadline for
26 Freddie Mac