Freddie Mac 2009 Annual Report Download - page 33

us to be classified as undercapitalized or prevent us from successfully completing a capital restoration plan. In November
2008, FHFA advised us that it has suspended the requirement to set aside or allocate funds for the Housing Trust Fund and
the Capital Magnet Fund until further notice.
Prudential Management and Operations Standards
The Reform Act requires FHFA to establish prudential standards, by regulation or by guideline, for a broad range of
operations of the enterprises. These standards must address internal controls, information systems, independence and
adequacy of internal audit systems, management of interest rate risk exposure, management of market risk, liquidity and
reserves, management of asset and investment portfolio growth, overall risk management processes, investments and asset
acquisitions, management of credit and counterparty risk, and recordkeeping. FHFA may also establish any additional
operational and management standards the Director of FHFA determines appropriate.
Portfolio Activities
The Reform Act requires FHFA to establish, by regulation, criteria governing portfolio holdings to ensure the holdings
are backed by sufficient capital and consistent with the enterprises’ mission and safe and sound operations. In establishing
these criteria, FHFA must consider the ability of the enterprises to provide a liquid secondary market through securitization
activities, the portfolio holdings in relation to the mortgage market and the enterprises’ compliance with the prudential
management and operations standards prescribed by FHFA.
On January 30, 2009, FHFA issued an interim final rule adopting the portfolio holdings criteria established in the
Purchase Agreement, as it may be amended from time to time, for so long as we remain subject to the Purchase Agreement.
FHFA requested public comments on the interim final rule and on the criteria governing portfolio holdings that will apply
when we are no longer subject to the Purchase Agreement.
See “Our Business and Statutory Mission — Our Business Segments — Investments Segment” for additional information
on restrictions to our portfolio activities.
Anti-Predatory Lending
Predatory lending practices are in direct opposition to our mission, our goals and our practices. We have instituted anti-
predatory lending policies intended to prevent the purchase or assignment of mortgage loans with unacceptable terms or
conditions or resulting from unacceptable practices. These policies include processes related to the delivery, validation and
certification of loans sold to us. In addition to the purchase policies we have instituted, we promote consumer education and
financial literacy efforts to help borrowers avoid abusive lending practices and we provide competitive mortgage products to
reputable mortgage originators so that borrowers have a greater choice of financing options.
Subordinated Debt
FHFA directed us to continue to make interest and principal payments on our subordinated debt, even if we fail to
maintain required capital levels. As a result, the terms of any of our subordinated debt that provide for us to defer payments
of interest under certain circumstances, including our failure to maintain specified capital levels, are no longer applicable. In
addition, the requirements in the agreement we entered into with FHFA in September 2005 with respect to issuance,
maintenance, and reporting and disclosure of Freddie Mac subordinated debt have been suspended during the term of
conservatorship and thereafter until directed otherwise. See “NOTE 11: REGULATORY CAPITAL — Subordinated Debt
Commitment” to our consolidated financial statements for more information regarding subordinated debt.
Department of Housing and Urban Development
HUD has regulatory authority over Freddie Mac with respect to fair lending. Our mortgage purchase activities are
subject to federal anti-discrimination laws. In addition, the GSE Act prohibits discriminatory practices in our mortgage
purchase activities, requires us to submit data to HUD to assist in its fair lending investigations of primary market lenders
with which we do business and requires us to undertake remedial actions against such lenders found to have engaged in
discriminatory lending practices. In addition, HUD periodically reviews and comments on our underwriting and appraisal
guidelines for consistency with the Fair Housing Act and the anti-discrimination provisions of the GSE Act.
Department of the Treasury
Treasury has significant rights and powers with respect to our company as a result of the Purchase Agreement. In
addition, under our charter, the Secretary of the Treasury has approval authority over our issuances of notes, debentures and
substantially identical types of unsecured debt obligations (including the interest rates and maturities of these securities), as
well as new types of mortgage-related securities issued subsequent to the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989. The Secretary of the Treasury has performed this debt securities approval function
by coordinating GSE debt offerings with Treasury funding activities. In addition, our charter authorizes Treasury to purchase
Freddie Mac debt obligations not exceeding $2.25 billion in aggregate principal amount at any time.
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